All the challenges of the ECB (with the unknown Germany)

14 December 20212 years ago babelfish

Facts, numbers, analyzes and scenarios on the next steps of the ECB. The in-depth study by Giuseppe Liturri

Next Thursday will be one of the most important meetings of the ECB's Governing Council in recent years. The wait and its outcome, whatever it may be, is dominating the entire week on the European financial markets and beyond.

Recollection of the damage caused by ECB President Claude Trichet's two sudden interest rate hikes in 2008 and 2011 is still too fresh not to fear the potential disasters that can lead to bad decisions. Not to mention the even more disastrous " we are not here to reduce spreads" pronounced by President Christine Lagarde on March 12, 2020 , only to run for cover only six days later, with the bond markets in turmoil, by launching the PEPP buying program for 1,850 billion.

For weeks now, there have been statements by national governors or members of the executive committee who have already put the different options on the table:

End of the PEPP program in March, as planned.
Strengthening of the APP purchase program, which started in March 2015 with Mario Draghi and is now stopped at 20 billion monthly purchases or, alternatively, the launch of a new "ad hoc" program to be used only in the event of instability in the financial markets.
Relaunch of the TLTRO program to finance banks.

The orientations that seem destined to prevail on Thursday are those dominated by the need to buy time. There are too many unknowns to take without hesitation a path that, instead, seems to have taken the Fed with decision. Lagarde will not make any commitments that go beyond a quarter and will try to keep the German front good while waiting for the French presidential elections in April to reconstitute a stable political framework on the Berlin-Paris axis. Only a glaring display of inexperience on the part of Lagarde could throw the markets into panic on Christmas Eve. An unlikely event but not entirely impossible, considering the protagonists on the scene and the structural difficulty of the ECB in holding together the economies of 19 countries set out on widely divergent paths.

It is also true that in recent days there have been signs of concern – launched by those who live and prosper sitting on this huge financial bubble generated with purchases of government bonds since March 2015 – about a wave of sales on the government bond market Italian banks , with Italian banks at the center of the whirlwind, but they seemed more than warnings to ECB decision makers more inclined to a rapid reduction in monetary stimulus.

Admitted and not granted that Lagarde manages to buy time without hurting the sensitivity of investors, there remains a huge knot to unravel: as long as it will be possible for Germany to remain in a monetary union that artificially keeps yields compressed into negative territory. of the ten-year bond around -0.30% and, at the same time, registers inflation at 6%? Or, alternatively, how large will be the counterpart charged to the Member States to justify such a high cost for German savers?

" Ad impossibilia nemo tenetur " is a broach that in Frankfurt or Berlin they will not be able to continue to ignore.

This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/bce-riunione-consiglio-direttivo/ on Tue, 14 Dec 2021 14:20:28 +0000.