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Aloof, not loose

3 November 2011 By Pierre Briançon

Why should the ECB care, really? This seemed to be the attitude of Mario Draghi when asked about the Greek crisis at his first media conference as president of the European Central Bank. Minutes after he jolted markets with an unexpected but welcome cut in interest rates, Draghi kept strictly to the party line when talking about the worsening euro crisis.

Indeed his answers seemed to have been cut and pasted from the Jean-Claude Trichet reference book. Down to the coded expressions that markets are expected to decipher to form an idea of where the ECB is heading.

The ECB isn’t preparing for a euro exit by Greece because “it is not in the [euro-founding] treaty”, said Draghi. Its sovereign bond-buying programme, meanwhile, is “temporary” in nature and “limited” in size – and the bank naturally doesn’t say for how long it will keep buying, and how much it will spend. Furthermore, the programme is only justified by the necessity to ensure the functioning of “monetary policy channels”. It is up to governments to restore their budgets, reform their economies and regain markets’ confidence. Next question, please…

This dry recitation of the ECB doctrine, coupled with Draghi’s apparently deliberate refusal to dramatise the Greek situation, hid intriguing undercurrents. The silence itself emphasized the point that if a euro zone government is tempted to resort to extreme measures, the ECB will play, with ever-greater determination, by its own rules. This distant but rigid attitude could prove a powerful deterrent. Governments know they have nothing to expect from Frankfurt if they stray.

Looking beyond the immediate crisis, it would be better for the ECB to admit clearly that it is within its remit to buy bonds of solvent countries willing to reform. But as a response to this week’s Greek scare, rigidity has its advantages.

 

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