The emperor, or at least Mario Draghi’s, clothes are starting to look more and more invisible at the moment. He can only say “we’ll do whatever it takes to save the euro” for so long before he has to, you know, do whatever it takes. First of all, Draghi can only go so far without the support of the Germans, and that support looks tenuous at best. Yves Smith points us to this Bloomberg story which doesn’t offer the most ringing of endorsements:
U.S. Treasury Secretary Timothy F. Geithner and German Finance Minister Wolfgang Schaeuble backed a commitment by European leaders to do everything needed to defend the euro area while failing to mention its weakest link, Greece.
In a joint statement issued after they held talks on the German North Sea island of Sylt today, Geithner and Schaeuble “took note” of comments made last week by European leaders to “take whatever steps are necessary to safeguard financial stability” in the 17-nation currency area.
“Took note” is really hysterical. That’s not really positive or negative, just vaguely aware. And we already know that the head of Germany’s central bank, Jens Weidmann, has already rejected Draghi’s preferred solution to the immediate crisis, direct bond purchases of sovereign debt. So I don’t see a consensus here. And Draghi apparently sprung this on his fellow ECB officials, who had no idea it was coming. Even Draghi didn’t endorse more than a general idea of bond purchases as a possibility. He didn’t say how much or when or under what conditions. Der Spiegel reports:
According to plans that were circulating among Europe’s monetary watchdogs last Friday, the ECB might buy the bonds of the threatened Spanish government again as a supplement to the purchases by the EFSF.
The plan envisions having the Luxembourg-based temporary bailout fund buy bonds directly from the governments because the ECB is not allowed to make such purchases on the so-called primary market. However, under Draghi’s plan, the monetary watchdogs will buy the securities of banks or investment funds in the so-called secondary market so as to drive down yields. This would double the firepower of the euro zone’s crisis weapons while simultaneously preventing Spain itself from having to resort to the bailout fund and accept stricter constraints on its reform programs.
But it is already clear that the plan will encounter resistance. Many monetary watchdogs — including Weidmann and, most of all, central bankers from the Netherlands, Belgium and Finland — have already been very outspoken in recent months about their opposition to new bond purchases.
Draghi appears to be ahead of the curve among the monetary officials, which still object to doing a whole lot of substance to avert crisis. There’s a new rumor about this bond-buying program as “saving the euro,” and the markets are buying it so far. But much depends on a September ruling in the German Constitutional Court on whether they will allow a separate European bailout fund known as the ESM (European Stability Mechanism). If that crashes, all bets are off.




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Stringing out the bullshit, for every possible minute they possibly can.
Thanks for stayin’ on top of it, David.
Draghi should have left it short and simple, a terse “whatever it takes.”
Instead WSJ a few days ago noted more in his quote, including a “within the mandate,” or some such. A red flag, best left unsaid. There was a misplaced equivocation there, since ECB could theoretically override the Germans. It was as if Draghi were trying to impress investors without getting their hopes too high or anger Berlin.
Something for everyone, temporarily, no?
Even if the German taxpayers signed on to trillions in bond purchases , and gave up their sovereignty pursuant to mutualizing euro liabilities ,these essential steps are short-tern impossibilities if only because of Finland .Beyond cultural and whatnot ,there are over 500 regulatory regimes and and no public appetite for negotiating the far deeper austerity trade-offs to appease the strong economies .Hedge funds have huge short positions on German bonds cuz of this reality ,plus which the German banks are completely insolvent ,with circa 60 to1 leverage ,