Mario Draghi Reprises Hank Paulson: Demands Full Monetization Authority Or Else Threatens With End Of Euro

Tyler Durden's picture

Yesterday's "leak" of Draghi's comments that it is not monetization if just the tip only bonds with a maturity of 3 years or less are monetized, aka, legitimate monetization does not cause inflation was so horribly handled that the ECB huffed and puffed in a desperate attempt to appear angry, even though it was absolutely delighted that it had even more ammo in its war against Germany. Today, the leakage continues only this time nobody cares that Draghi's desperation is hitting the headlines left and right. As a result, Draghi literally pulled a carbon copy of Hank Paulson, and while he did not have a three page term sheet in hand, threatened that the Euro would end unless he was allowed to monetize short-term bonds. Here's looking at your Germany. From Bloomberg: "European Central Bank President Mario Draghi said the bank’s primary mandate compels it to intervene in bond markets to wrest back control of interest rates and ensure the euro’s survival. Mounting his strongest case yet for ECB bond purchases, Draghi told lawmakers in a closed-door session at the European Parliament in Brussels yesterday that the bank has lost control of borrowing costs in the 17-nation monetary union."

Bloomberg continues: "We cannot pursue price stability now with a fragmented euro area because changes in interest rates affect only one country, or two countries at most,” Draghi said. “They have no importance whatsoever in the rest of the euro area.” ECB bond purchases are therefore “a way to comply with our primary mandate,” he said, adding: “Frankly, all this also has to do very much with the continuing existence of the euro.” The reason he added the last part is because as Asmussen has hinted, the ECB believes it is in its mandate to do everything, including monetize whatever it needs, to prevent the market from dumping bonds and selling the EUR (ironically a weak currency is precisely what an economically impliding Europe needs). Of course, the reality is that Draghi has cause and effect completely reversed, and the only reason the EUR is plunging, as are peripheral bonds is because the local governments are doing nothing to fix their miserable fiscal reality, and will continue to do so as long as the ECB continues to intervene and give the impression that things are better than they really are.

But the worst news, is that the European Central Jawboner no longer seems to have any impact, and while the EURUSD did spike yesterday on these news, only  to retrace all gains, today's rehash of the same comments resulted in a brief 30 pips spike in the EURUSD, only for the entire move to be undone in under 10 minutes.

Which means only one thing: the market, as well as everyone else, is getting sick and tired of mere talking, promises and jawboninb, and now demands action. Which, however, is the worst possible thing for the central planners, as once again, their faulty theory will be exposed for everyone in pracitse: one can promise the moon, but when it comes time to deliver, not even the world's greatest central planners can do much if anything.

More from Bloomberg:

Draghi’s plan involves the ECB buying bonds on the secondary market of countries that ask Europe’s bailout fund to purchase their debt on the primary market, which would require them to sign up to conditions. Neither Spain nor Italy has made such a request yet.


The ECB sent proposals for the plan to national central banks today ahead of the Sept. 6 policy meeting. Germany’s Bundesbank opposes the ECB purchasing government bonds, saying it is too close to state financing for its comfort.


Draghi said the ECB’s interventions will not amount to monetary state financing as long as it purchases short-dated bonds.


“If we are to buy long-term bonds we are in a very delicate situation,” he told the lawmakers. “But if we go on the short-term part of the market where bonds have a length of time, a maturity of up to one year, two years or even three years, these bonds will easily expire, so there is very little monetary financing if anything at all that we are doing.”



While many countries have made “substantial progress” recently, “we can’t exclude that at some point in time this progress can easily stop because of adjustment fatigue,” Draghi said. “So that’s why we are asking for conditionality combined with these interventions by the ECB. I think this could stand against the charges that we are doing monetary financing, because we are not doing it.”


Draghi started his testimony yesterday with an overview of the economic outlook.


He said financial-market sentiment “has somewhat calmed down over the past few weeks.” Still, the situation “remains fragile and it’s surrounded by heightened uncertainty,” he said. “Looking ahead we continue to expect only a gradual recovery with subdued momentum and risks on the downside.”


Draghi said risks to the inflation outlook “are still broadly balanced, but certainly further intensification of financial-market tensions has the potential to affect the balance of risks for both growth and inflation towards the downside.”


Lending to households and private sector companies is “still very, very sluggish,” he said.


Asset Classes


Draghi said the debt crisis has distorted yields across a range of asset classes.


“Markets have perceptions of a certain country in a crisis,” he said. “Therefore they ask for higher interest rates in order to buy the bonds issued by the country. And when I say bonds I don’t only mean government bonds. Bank bonds, corporate bonds. Markets are asking for higher and higher interest rates, which in return reinforce the situation of the perception of the crisis. That’s where the main justification to step in is for the ECB and start buying bonds.”


The fact that the ECB’s monetary policy is only being transmitted in one or two euro nations compels the ECB to intervene, Draghi said.


“We have to rebuild the euro area,” he said. “We have to overcome this fragmentation exactly for pursuing price stability through changes in interest rates.”

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Jlmadyson's picture

One last gulp of air.

ghengis86's picture

Before going down on the Bernanke Bux?

GetZeeGold's picture



Maybe it's just me, but it seems like a hell of a lot of people are demanding a hell of a lot of crap these days.


EscapeKey's picture

Yes, and these same people will claim it's "undemocratic" if they don't get what they want.

Harlequin001's picture

'that the bank has lost control of borrowing costs in the 17-nation monetary union."'

No shit, really...

Now who would have thought that could happen...

flacon's picture

It was just a couple weeks ago that Draghi stated emphatically that the Euro was "IRREVERSABLE!". What changed, Mr. Draghi? Or how about a great big FUCK YOU to you too!

Zero Debt's picture

It's totally against their charters and provisions to let the ECB directly finance governments in this way.

Today Draghi is talking about the "short end". This is just the beginning, they will go "all in" and buy the whole curve sooner or later.

Can't the sheeple see what is going on? Why are they still sleeping?

NotApplicable's picture

The only question that matters; does he have a gun?

banksterhater's picture

Draghiqueen- put the gun in your fking mouth!

Ghordius's picture

and does this gun have 17 bullets in the magazine?

chart_gazer's picture

is it the feds charter to "prop up the stock market"? no, but they are. charters, rules, constitutions, laws will all be ignored. they will jawbone, print, and say they're not until pigs fly.  they have no other choice and there is no one that will get in their way. if someone tries they will be eliminated.  there will be global inflation, the only question that remains is 'how much?"

AbelCatalyst's picture

They will sleep until something wakes them up. This is all noise until something happens. Hence, the can kicking as far as possible. You can only do nothing for so long. The sheeple can only sleep for so long. The debt can only grow for so long...

Patience grasshopper, the end will come... It's a house built on sand waiting for a storm... The sheeple may not be able to articulate what is wrong and may not understand all the nuances shared on ZH, but the people I talk to just feel like something ain't quite right...

And then their debit card stops working and the cable goes off! Then things get real (hahaha - its when the cable goes out that people take notice. So true. So sad. And absolutely hilarious!!)

spastic_colon's picture

Meanwhile the silly defense of 13000 and 1400 continues

Nobody For President's picture

Ooops - that line got crossed and tossed this morning - still under at 1220, but the PPT is still having their morning coffee.

Stackers's picture

Damn those evil "speculators" for driving up interest rates

Harlequin001's picture

“Markets have perceptions of a certain country in a crisis,” he said. “Therefore they ask for higher interest rates in order to buy the bonds issued by the country... Markets are asking for higher and higher interest rates, which in return reinforce the situation of the perception of the crisis. That’s where the main justification to step in is for the ECB and start buying bonds.

Classic. I do believe the man actually thinks he IS the market...

and that the economy is wrong.

Why doesn't he just switch the columns of his balance sheet? Problem solved and there's bound to be a big fat bonus in there as well somewhere... you just need a wheel barrow to carry it home.

maxmad's picture

we are going to take our ball and going home!

slaughterer's picture

Draghi is stealing a page from the 2008 Paulson playbook, this time funding TBTF countries rather than TBTF banks.  When do we get to the point where CBs are bailing out entire planets and solar systems?   

Poor Grogman's picture

Quite true, for maximum gravity the call for more central bank power (or Paulson putsch) must be made at a "closed session of parliament" Oooh. Ahhh so scary....

Cognitive Dissonance's picture

Mario Draghi to Hank Paulson - "My bazooka is bigger than yours."

machineh's picture

"We cannot pursue price stability now with a fragmented euro area because changes in interest rates affect only one country, or two countries at most,” Draghi said. “They have no importance whatsoever in the rest of the euro area.” 

Translation: I AM RELEVANT! (or soon will be, when I can 'print like Ben')

Mario Magnifico, central planner extraordinaire.

Harlequin001's picture

The man is without doubt a total fucking nut.

Does he really believe this shit?

Terp's picture

No, but he works for Goldman...thats all you need to know really...

Ned Zeppelin's picture

And speaking of other relevant wisdom to be gleaned from the Hank Paulson Thievery For Dummies handbook on this, there will be mild push back, then the granting of Mario's wish in toto - they have no other answers. 

Trichy's picture

First lesson at GS,

GS goes MAD to get what GS wants.

NotApplicable's picture

It's the only play in any real banker's book.

One can only lie so long once things get serious, and all that...

WALLST8MY8BALL's picture

White courtesy for Mr. Blankfien

Abraxas's picture

End the freaking thing!!! Disassemble the union and kill the currency. Enough already!

Ben Burnyankme's picture

Yes, it will be nice to go back to 50 un-united states.  Oh, and Europe too.

Meremortal's picture

Meanwhile Bulgaria says, "Finalize joining the EU and convert to the euro currency?"

Not on your life, do you think we are crazy?


SheepDog-One's picture


eaglefalcon's picture

I luv bond vigilanteS!

Boilermaker's picture

Was it more than 3 pages this time?

I love the 'no questions and no audits and no accountability and no tracking' part of Hank-the-skank's proposal.  That was just dandy.

For those that don't recall:

poldark's picture

Twice the French tried getting out of fonancial trouble and twice it got them into serious trouble.

Ben and Draghi should read this.

falak pema's picture

Ben thinks he understood 1929, so 1789 is childs play. Central banking is based on trust. Ben has the trust of the Oligarchs of the World. He is right there with Edmund Burke. Who cares about democracy when you have "THE INSTITUTIONS AND TRADITION BEHIND YOU"....Burke's very words, now being applied by Helicopter Ben from his great institution the FED! 

Harlequin001's picture

I think Ben does understand 1929. I think he understands that the main cause of it was a mania first in Germany in 1923 and then with the fallout of the movement of that money to the US and the panic withdrawal which followed. I think he understands that the one thing we have now that we didn't in 1929 is the telly, and that the telly can convince people not to sell and stampede for the exits.

I think he knows that as long as talking heads stand up on TV and tell all's well and that they're 'working for you' that he can do anything he wants in the name of preserving our way of life, and that he can and will destroy anyone who gets in his way whether it's a little guy or an entire country.

I think he knows he's got it licked, until he hasn't. but he like all the others will have all their gold stashed long before then.

Such is life. Me, I'm buying facebook, looks like a snip at these prices... not.

falak pema's picture

When you can print for three years why be so short sighted, print for five then for ten...etc. 

Draghi has method in his madness.

Will she buy it? Has she a choice? 

Hellicopter Ben must show his acumen if she sings 999!

Too Big 2's picture

"Give me back my bubble!" 

Haager's picture

It's so sinister - bullish...

dcb's picture

Ahh, yes you mean the standard goldman tactic of saying the wporld will end if we don't give them and their friends unlimited money. stadard in the financial industry. I beleive it's taught in the goldman orientation

pamriallc's picture

The only countries with borrowing difficulty are those who cannot pay....just like getting credit from any bank. If you don't need it they come running to finance you. If you need it they double the rates and triple the downpayment or collateral pledge. Spain cannot pledge Germany. Already rehypothecated.

nmewn's picture

Gimme My Debt Binky: Eur All Peons Edition 

magpie's picture

...and UK PMI leaked as well

saturn's picture

Draghi leaking while he sleeping.

magpie's picture

by now liquidity isnt the problem, but solvency