Although the Olympics’ Opening Ceremonies and the arrival of the “men in black” in Greece caught some attention Thursday, many headlines focused on a recent speech by ECB President Mario Draghi. The headline-grabbing moment wasn’t so much his use of a vague analogy involving bumble bees, but this:
“Within our mandate, the ECB is willing to do whatever it takes to preserve the euro and, believe me, it will be enough ...”
To frequent readers of MarketMinder, his comments shouldn’t be too surprising. He simply expressed what we’ve long held about eurozone officials—they likely do what’s necessary to prevent a disorderly euro breakup in the near term. But his commentary seemed enough for a small gaggle of folks to begin attempts at divining his deeper meaning.
Some folks suggested it might mean the ECB would restart its Securities Market Programme (SMP), buying the sovereign debt of peripheral nations in secondary markets. The ECB currently has €211 billion in PIIGS debt on its balance sheet—purchased through the SMP. However, the SMP has been idle since February. Other folks suggest Draghi’s comments might mean the ECB is ready to concede and grant the EFSF or ESM a banking license—thereby allowing them to borrow from the ECB at low overnight rates and buy (or lend) directly to sovereigns. Still other folks prognosticated Draghi’s comments reveal the ECB is likely closer to pulling out its “big guns” and printing euros—an idea the inflation-averse German Bundesbank has long opposed. And of course, the fourth and fifth options are something entirely unforeseen to support the PIIGS and some combination of all of the above. Or maybe Draghi’s comments turn out to be mere jawboning. Anything’s possible, but since policymakers have repeatedly shown the willingness to back the euro, Draghi’s following words with actions wouldn’t surprise us.
To be sure, none of those options is a silver bullet that cures all the euro’s ills. Nor would we want to speculate on the likelihood of each. But whatever the ECB’s course of action from here, the main message here seemingly continues to be that eurozone politicians, officials and citizens have invested tremendously in the common currency and have the resolve and fortitude to prevent a disorderly breakup right now.
Draghi’s comments conveniently coincide with troika auditors’ arrival in Greece today for their fact-finding mission on how far the country has strayed from the terms of its bailout package. Greek leaders aim to convince creditors the measures they’ve taken are sufficient (or are a reasonable attempt) under the terms of their rescue plan. Thus far, Prime Minister Antonis Samaras has outlined cuts of an additional 11.5 billion euros in 2013 and 2014—primarily coming from pension spending and health care support. Likewise, the government plans on raising funds by redoubling its efforts to privatize state assets—a plan that hasn’t gone so well to date.
But we’d be remiss to not remind readers the challenge for Greece and the rest of the periphery is to increase their economic competitiveness—something they haven’t necessarily made much progress with yet. But more broadly, the fate of Europe likely doesn’t hinge on Greece—virtually everyone is aware of its recent and long-term history of odd fiscal behavior. The issue of primacy in the eurozone is and has been mostly political: Do policymakers have the will to back the euro and prevent a disorderly shattering? To date, the answer’s been yes, and Draghi’s comments Thursday indicate that likely remains the case.
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