ECB guarantees the liquidity of the Atlantic financial volume

Mario Draghi, President of the European Central Bank (ECB) gave a press conference on the meeting of the G20 central bankers (EC Audiovisual Services, 25/02/2012).

Mario Draghi, President of the European Central Bank (ECB) gave a press conference on the meeting of the G20 central bankers (EC Audiovisual Services, 25/02/2012).

There is no doubt that the European Central Bank is determined not only to continue supporting Eurozone’s real economy with liquidity at almost zero interest rate cost for as long as it needs to achieve tangible growth, but by the same token it appears ready to succeed the American Fed in keeping the western financial volume liquid. In this way the ECB is emerging as a regular major western central bank, liberated from the traditional ideology of the German central banking institution, the Bundesbank, which tries restricting the role of ECB only to a guarantor of the price level.

It is true though that according to ECB’s statutes Eurozone’s central bank cannot interfere with real economy through policies directly supporting growth. Yet last week ECB’s Mario Draghi said that until Eurozone’s real economy achieves strong growth, interest rates will remain at their very low-level of 0.5% or below it “for as long as it is needed”. He clearly stated that “The Governing Council confirms that it expects the key ECB interest rates to remain at present or lower levels for an extended period of time”.

The new role of ECB

In this way the scenery in ECB has changed completely with Mario Draghi in its steering wheel. Last summer Draghi firmly stated that the ECB “will do whatever it takes to safeguard the Eurozone”, then he added “believe me it will be enough”. He obviously meant that the ECB was ready to go as far as to buy sovereign debt. This prompted the resignation of both the governor of Bundesbank and the German representative in ECB’s governing council, but it greatly reduced the risks associated with the euro. It must be noted that on that occasion Draghi had the support of Berlin, with Merkel letting the two German bankers out in the cold. We will see why.

Obviously the role of ECB was gradually increasing from a Eurozone inflation keeper to something bigger. To this effect in September 2012 the ECB announced its famous Outright Monetary Transactions (OMT) initiative. This was a program, under which the bank could appear as buyer in the secondary sovereign bond markets, under certain conditions, acquiring debt paper issued by Eurozone member-states. Until this day the central bank of Eurozone has managed to greatly contain the borrowing cost of Spain, Italy and Ireland without having to spend not even one single euro.

This brings us to last month’s developments, when the ECB’s governing council decided a major change in its policy principles. The ECB will be from now on ‘guiding’ the markets and not simply guarding for inflation pressures, which are actually not existing. Draghi though had to confirm this once more last week, because there was a misunderstanding in financial markets. The western financial volume was under pressure because the American central bank, the Fed, issued conflicting signs over its intentions about sticking with its relaxed monetary policies or restricting the dollar liquidity.

ECB going global

In view of that the ECB stated last month that it changes its policy principles and starts ‘guiding’ the financial markets for the first time ever, reassuring them ex ante over a long-term accommodative stance, with abundant liquidity at close to zero interest rates. Last week Draghi had to reaffirm that once more. He said “Our monetary policy ( ECB’s governing council)…thereby provides support to a gradual recovery in economic activity in the remaining part of the year and in 2014. Looking ahead, our monetary policy stance will remain accommodative for as long as necessary. The Governing Council confirms that it expects the key ECB interest rates to remain at present or lower levels for an extended period of time”.

The ECB says here in the most solemn way, that it will take care of all the needs of Eurozone’s real economy. indirectly however it also reassures everybody that it will cater also for the liquidity accommodation of the entire Atlantic financial volume, if the Fed goes for a stricter policy. We will see more evidence for that below. This was something markets needed to be reassured of after the Fed started talking about holding back on dollar liquidity. Not to forget that the euro, dollar and English pound financial markets are tightly bound together. To confirm this Draghi noted that, “Recent developments in global money and financial market conditions and related uncertainties may have the potential to negatively affect economic conditions”. That’s why he had to promise ample liquidity for all at 0.5% or lower interest rate cost.

Undoubtedly in this way the ECB states that it is ready to succeed the Fed in offering the liquidity needed all over the Atlantic financial volume.

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

Advertising

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Give a chance to the brothers of Ailan: reception of refugees in Greece

Service and Sacrifice: Ugandan ‘Blue Helmets’ support UN efforts to bring peace to Somalia

Robots will soon be a necessity but they won’t take all our jobs

The city of Quito just made commuting quicker and safer

Commission concludes that an Excessive Deficit Procedure is no longer warranted for Italy at this stage

MEPs back measures to reconcile career and private life

Could the fourth wave of globalization help to end epidemics?

MEPs adopted measures to reconcile work and family life

EU: Centralised economic governance and bank supervision may lead to new crisis

Dealing with stress among healthcare professionals: are we missing the elephant in the room?

These are America’s most dangerous jobs

Mental health and suicide prevention: why focus on primary care

New rules to help consumers join forces to seek compensation

What is the IMF telling Eurozone about fiscal and banking unification?

Eliminating hepatitis calls for ‘bold political leadership, with investments to match,’ UN health chief says

Forty-two countries adopt new OECD Principles on Artificial Intelligence

EU Commission closer to imposing anti-dumping duties on Chinese solar panel imports?

Trees in ‘green’ Cameroon refugee camp, bring shade and relief from ‘helter-skelter’ of life

How the Middle East is suffering on the front lines of climate change

UN migration agency: young Rohingya girls, largest group of trafficking victims in camps

Safer roads: EU lawmakers agree on life-saving technologies for new vehicles

Can the US deal a blow to EU and Russia together over Ukraine?

The Stray

European Commission determined to conclude EU-Mercosur trade deal this year despite French concerns

Restoring government control across Central African Republic is ‘key’ to lasting peace, stability – UN envoy

Why do medical students need to emigrate to become doctors in 2017?

Why South Africa is on a path of economic renewal

President David Sassoli to visit Skopje: “Remain on the European track”

FROM THE FIELD: Enslaved Guatemalan indigenous women wait for reparations

How close is Eurozone to a new recession which may trigger formidable developments?

India should ‘unlock’ freedom curbs in disputed Kashmir, urges UN human rights chief

Is this the way to finally beat corruption?

The European Internet is not neutral and neither is the Commissioner

This Dutch company makes environmentally-friendly paint

This is why Dutch teenagers are among the happiest in the world

Security Council should ‘nurture’ Colombian consensus against return to violence, top UN official urges

Black Panther’s ‘General Okoye’ joins the fight against gender-based violence

Sustainable Development Goals: making the world a better place

From rescue animals to electric buses, California is introducing bold new rules

US must abide by humanitarian refugee accords: UN refugee agency

Data is the fuel of mobility. Don’t spill it for nothing

We had the hottest June ever this year – this is what happened around the world

Charlie’s tragedy energized deeper feelings amongst Europeans; back to basics?

India’s Largest Entrepreneurship Event is Back! (23-24th August 2016)

Second Facebook-Cambridge Analytica hearing: impact on privacy, voting and trust

5 ways to #BeatAirPollution

Commission offers discount on fines to banks for competition infringements

EU and China to do more in common if the global scene gets worse

UN agencies welcome green light for Rohingya projects in northern Myanmar; urge ‘more effective access’

Draghi’s ‘quasi’ announcement of a new era of more and cheaper money

Can medical students be prepared for Global Health ethical issues?

Why business can no longer turn a blind eye to poor vision

Parliament criticises Council’s rejection of money laundering blacklist

Mali facing ‘alarming’ rise in rights violations, warns UN expert

Progress on gender equality is too slow, says OECD on International Women’s Day

Commission supports normalisation in Greece through activation of post-programme framework

This woman solved one of the biggest problems facing green energy

China’s Ambassador to the EU Zhang Ming wishes to Brussels a Happy 2019 Year of the Pig

A Monday to watch the final act of a Greek tragedy; will there be catharsis or more fear?

How can newspapers survive? By measuring their social impact

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s