The European Central Bank can act at any time, Jean-Claude Trichet, president likes to boast (did he ever see Monty Python’s famous “Nobody expects the Spanish Inquisition” sketches?). He certainly proved the point last night. The ECB’s statement announcing the decision to intervene in government bond markets came at 3.15am.
Why the unearthly hour? The reason is fairly simple. Mr Trichet was determined that the ECB would only act once governments had made new pledges to bring fiscal policy back under control. At Friday’s eurozone leaders summit in Brussels, he berated them for their past dithering. Mr Trichet also wanted to show the ECB’s independence, so finance ministers could not be seen announcing what the central bank was going to do.
It is ironic that for all the talk of the Fed’s “exit strategy” from crisis-era policies, US officials were called together last night to reopen one of the main facilities of the meltdown.
Last night central banks announced they would start engaging in currency swaps again — a reminder of the continuing fragility of the global financial system.
The Fed has reinstated dollar swaps with Europe and Canada because European commercial banks are struggling to get hold of dollars. This problem comes up every time strain mounts on the global financial system – the dollar is the world’s reserve currency and only the Fed can provide it. The BOJ is meeting as I write to agree the same.
The policy is necessary to deal with a rise in short-term dollar interbank rates: