ECB on Mars?
Super Mario has been in the office for a while now, but what has the ECB actually accomplished since he joined, except the mighty LTRO? Yes, the LTRO was a great liquidity injection, where Spanish banks have been buying Spanish bonds. This is just like moving money from the left to the right pocket, with leverage….With the ECB balance sheet having expanded aggressively, we should be asking ourselves; are they in control of the situation? From Macrobusiness.
Overnight the president of the European Central Bank, Mario Draghi, gave a speech to the Hearing at the Committee on Economic and Monetary Affairs of the European Parliament. The speech was not particularly out of line with what Mr Draghi usually says, such as:
Available indicators for the first quarter of 2012 broadly confirm a stabilisation in economic activity at a low level. Latest developments in survey data are mixed, highlighting prevailing uncertainty. Looking ahead, growth should be supported by foreign demand, the very low short-term interest rates as well as our non-standard measures. At the same time, downside risks relate in particular to a renewed intensification of tensions in euro area sovereign debt markets and their potential spillover to the real economy. Further increases in commodity prices may also hamper economic activity.
This is the same speech lead-in we have been hearing since Mario Draghi took over the helm of the ECB from Jean-Claude Trichet. Given recent PMI data much of this statements appears to be completely disconnected from the reality of what is happening in Europe, but this isn’t the first time I have noted Mr Draghi’s apparent delusion.
Mario Draghi went on to state that he thought Eurozone inflation would be stable because:
… the monetary analysis, in particular the subdued pace of underlying money growth, confirms the prospect of price developments remaining in line with price stability over the policy-relevant horizon. Money and credit data up to February point to a stabilisation of financial conditions. At the same time, the demand for credit remains weak in the light of still subdued economic activity and the continuing process of balance sheet adjustment in non-financial sectors.
I consider it of crucial importance that banks strengthen their resilience further, including by retaining earnings and by retaining bonus payments. The soundness of banks’ balance sheets will be a key factor in facilitating both an appropriate provision of credit to the economy and the normalisation of their funding channels.
Full article here.