Tuesday 21 August 2012
Eurocrash: a problematic day
The bank was "considering" setting yield targets on the bonds of eurozone countries and, when interest rates exceed those levels, the ECB would intervene by buying up their debt.
This was the "Bazooka" or "Big Bertha" that the child-like commentators were expecting, and such is the faith of traders in the magical properties of the ECB that this was enough to fuel a short-term rally on the currency and other markets.
The story didn't run long before it was brutally terminated by the ECB itself. A spokesman snarled: "It is absolutely misleading to report on decisions, which have not yet been taken and also on individual views, which have not yet been discussed by the ECB's governing council".
Spiegel should have known better. In an earlier piece, Süddeutsche Zeitung had already spelled out 6 September as the date when the governing council met. This was when a decision was expected on buying bonds. So far, the issue had only been discussed in the two permanent ECB working groups. No formal decision had been made on whether to pursue the idea.
Predictably, with Spiegel being slapped down, the euro slipped back, ending down on the day. This predicament was made worse by the Bundesbank (and others) putting the boot in, repeating that it had concerns about ECB bond-buying which it said, posed "considerable risks to stability".
In its monthly report, its statement read: "The Bundesbank remains critical of the purchase of euro system sovereign bonds, which comes with considerable risks for stability". Firmly putting the ECB in its place, it added: "Decisions about a possible broader mutualisation of solvency risks should be ... with the governments and parliaments, and should not occur via central bank balances". The turf warcontinues.
This gets more interesting as the feud intensifies between Jörg Asmussen, the German member of the ECB board and its current director, and Bundesbank chief Jens Weidmann - with blood on the floor and no clear victor - yet.
Meanwhile, a number of hacks have been trawling over the bones of the Finland story, but the story for this day is about euro-burn-out. The poor little darlings in the ECB are complaining about overwork, and lack of staff.
It looks as if the member states will have the last laugh here. The size of the ECB is strictly limited by them, and only 40 more staff have been authorised to carry out its grandiose plans. In this case, it seems, not only is the flesh weak, the spirit isn't even willing.
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Tuesday, 21 August 2012
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