ECB verdict : "It's a complex thing"
Before giving a brief comment on what has been decided upon today, a quick quiz show. Who is quoted for the following statement earlier this week :
"Markets are not allowed to run wild and must serve the people rather than the other way around. When we look at international markets over the last five years, then we see that they haven't served people, rather they enriched a few, and many people around the world have paid the price for this. The main task for politics today is to bring the spirit of the social market economy into the financial markets so that international financial crises don't repeatedly ruin what people have built up with their own hands and hard work".
A) Mario Monti
B) Angela Merkel
C) François Hollande
And as usual in multiple choice, go for the middle answer, being B. Yes, Angela speaking before sister party CSU a couple of days ago. And that's why it's a complex matter, in the case of Germany even a paradox in view of the fact that Germany time after time has been hammering on discipline in order to regain market confidence. A very recent Reuters article by the way gives a nice summary on this split German feeling which may be is not so strange after all (http://www.reuters.com/article/2012/09/05/us-investment-germany-markets-idUSBRE88409I20120905). The title is already a good indication of what to expect : "Seek the trust of financial markets, but only so far as you can trust them".
The outcome today was no surprise except for the rate decision (no change & -0,25% expected). This was the public image exercise to please another building in Frankfurt. On the final outcome and the bond purchase program, some on the right will disagree but that will hold for some on the left as well because this compromise basically contains both sides of opposing economic schools of thought : It's printing all right but it's sterilized (ps : to some extent) ; It's helping cheaper governmental funding but it's conditional. Seniority of ECB holdings gone (recap ECB in the future if necessary ?). Is it the best of both worlds ? Only time will tell and time is what we have bought to give this project one last chance. Because in the end, and also mentioned by Draghi, it all comes down to politicians playing by the rules. Is moral hazard hereby addressed ? We will see how these arrangements are going be laid down in legally binding commitments. One final detail here : "Decision was not unanimous with 1 dissenter". Was it an Austrian, a Fin, a Dutch or a German member ?
From this Reuter' article, we leave you with 1 final remark coming from Bernard Speyer - Deutsche Bank Research :
"There are two views at work. First is that financial markets do not understand the constraints of policy or respect the primacy of democratic developments and governments must therefore enforce the latter. The second is financial markets by themselves are not able to find a stable equilibrium and that's another justification for constant government intervention, albeit one with a consequence of making markets even more volatile. This idea of using market forces to some extent, but in tandem with government direction or intervention, has been around since the euro was first devised. The monetary union treaty has both a "no-bailout" clause and a government administered "stability and growth" pact. This dual thread persists today. Germany demands reform and cuts to gain market trust, while developing an intergovernmental fiscal pact and agreeing intervention by the ECB or European Stability Mechanism to correct market skews. I think there's a grain of truth on both sides and if you take that as a foundation for the 'muddle through' approach of European institutions in this crisis, then it all starts to appear more strategic than at first sight."
Basta cosi, the best way to illustrate what happened today is probably to give the floor to the following singer song writer : Italian, born in Hannover Germany , wears a Napoleon hat (second hand Sarkozy it seems) and performing "Lord Jim" somewhere in Amsterdam :