Eurocrash: they hear what they want to hear
Friday 7 September 2012
The reason was simple. On Google News, when I last lookedt, there were listed 6,945 reports on the Draghi statement. Thousands, starting with Reuters, had headlines telling us that the president of the ECB had got backing for "unlimited" bond-buying, or words to that effect.
Now, go through the ECB releases and the Draghi statements. What is the one word that is notused? You guessed it … "unlimited". Nowhere at all is there any direct use of that word. All Draghi does say is: "No ex ante quantitative limits are set on the size of Outright Monetary Transactions".
That "ex ante" is rather crucial. Not least, its use as a qualifier suggests that there are limits. These can, of course, be ex post facto. When embarking on a sequence of transactions, the ECB may not set a limit at the outset on the size of transactions (although not the number of transactions made). But, as the sequence unfolds, there is nothing to stop the Bank applying a limit retrospectively.
It must be noted, though, that Draghi applies the absence of an ex ante limit to the size of the transactions – not to the number of transactions made, nor the programme as a whole. Individual transactions are in any case self-limiting because all the bond sales are defined by a stated value. Only the programme as a whole can present a potentially unlimited liability. And Draghi made no statement on the size of the programme.
Not by any stretch of the imagination, therefore, has the ECB committed to an unlimited bond-buyingprogramme. In any case, for that to happen, the ECB would need unlimited funds – which it does not have.
Thus, when asked (by Reuters) whether the purchases would be unlimited in amount and time, Draghi repeats the claim that there are no "ex ante" limits for the amount of outright monetary transactions - i.e., the size of any one purchase. As to the totality, the purchases, he then said, were to be "adequate to reach our objectives".
Putting this together, what it effectively means is that the ECB is not putting any initial cap any individual purchases, although it can apply a limit to how many purchases it makes and may apply a retrospective quantitative limit. But the programme as a whole is very evidently limited. The declared intent is to expend only that amount which is deemed "adequate" to meet the objectives.
Now, the interesting thing is that all the journalists at the press conference heard this. None of them heard Draghi say - as The Daily Telegraph, for instance, asserts - that he was launching an "unlimited" bond buying programme. And the reason they didn't hear that is because Draghi didn't say it.
But the press corps went into that conference expecting to hear Draghi announce an unlimited programme. What he actually said was something very different. But they still heard "unlimited".
Nevertheless, claims of the type made by The Guardian, that the ECB "was prepared to buy unlimited quantities of government bonds", simply can't be justified. As for Draghi, his "programme" is one almighty bluff. The journalists heard what they wanted to hear - what they were intended to hear.
They've been conned.
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Richard North 07/09/2012
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