Solving the Euro crisis has been mainly on trying to talk about the bazooka, the whatever it takes and other empty phrasings. The question is, are Eurobonds inevitable? More on the subject via John Quiggin.
“Whatever it takes.” Those were the words followers of the euro zone have been waiting to hear ever since Mario Draghi replaced Jean-Claude Trichet as head of the European Central Bank. To spell out the quote in full, Draghi said: “The ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”
Central bankers are famously gnomic in their utterances. This is, however, about as unambiguous as they ever get. Jean-Claude Trichet used exactly the same phrase in reference to his determination to put inflation control ahead of all other objectives, and he demonstrated it with policies that came to the edge of destroying the euro in order to save it from inflation. Draghi’s choice of words therefore amounts to, at the minimum, a sharp change of course.
Of all the actions open to the ECB, there is only one that is sufficiently big, and sufficiently controversial, to justify Draghi’s statement. That is a decision to buy the bonds of EU member states, if necessary printing euros to do so, and accepting the risk of higher inflation.
A default by Greece on its debt is out of the question, European Central Bank president Jean-Claude Trichet.
Video below to refresh your memory.
As Trichet is speaking, and HFT listening, markets move as usual on no volume, where the speed of light is determining bid/offer spreads. Before considering buying this no volume melt up we have witnessed lately, please review some of the news Trichet is delivering.
*ECB’S TRICHET SAYS CONTAGION THREATENS FINANCIAL STABILITY – BLOOMBERG
*TRICHET SAYS LIQUIDITY AND FUNDING RISKS ARE `HEIGHTENED’ – BLOOMBERG
*TRICHET SAYS EURO CRISIS HAS REACHED `SYSTEMIC DIMENSION’ -BLOOMBERG
And the reaction….
Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference here in Berlin. Let me take the opportunity to warmly thank President Weidmann for his invitation and kind hospitality. I would also like to express our special gratitude to the staff of the Deutsche Bundesbank for the excellent organisation of our meeting. Let me now report on the outcome of today’s meeting of the Governing Council, which was also attended by the President of the Eurogroup, Prime Minister Juncker, and Commissioner Rehn.
Guest Post Weekender by MoreLiver.
What a week – Super EFSF proposed last weekend, shorting bans continued, financial transaction tax (FTT) gaining ground. Now even Barroso is switching to the same hypomanic gear as Trichet. Somebody please send them more lithium before it’s too late.
During the week the proposed Death Star (leveraged EFSF) has been mostly shot down by commentators: it has been argued that it does not solve the underlying fundamental problems of the eurosystem, leverage would not be credible, ECB’s commitment is uncertain and above all, markets are not impressed, as the EFSF and the Death Star-EFSF is too little, too late.
Expect more can-kicking and soothing the voters by playing the bad cop to PIIGS and the banks. As the banks are weak, the bad cop routine will be limited to indirect threats like the shorting ban, FTT and HFT. They will not make additional moves until the EFSF is ratified.