The Frankfurter Allgemeine Zeitung interview with Mario Draghi produced other insights (see earlier post on his comments on the ECB’s Greek bonds).
Positive news about the eurozone outlook had increased since the ECB’s last governing council meeting, he said, “although uncertainty remains high”, which appeared to confirm there are no further cuts in official interest rates in the pipeline.
Mr Draghi also hinted strongly he would not relax further standards applied to the collateral banks can use to obtain the central bank’s liquidity.
Paris is again calling on the European Central Bank to act as lender of last resort for governments. From the FT’s Hugh Carnegy in Paris:
Alain Juppé, the French foreign minister, stepped up the pressure on Thursday, saying intervention by the ECB was a matter of urgency.
Speaking on France Inter radio, Mr Juppe said the market’s cool reception of Wednesday’s German Bund auction showed that the crisis “touches all the economies, including the most solid”.
“There is urgency. We will talk about (ECB intervention) today in Strasbourg. I think and hope that the thinking will evolve and that the ECB should play an essential role to re-establish confidence.”
Paris is hoping that, backed by similar pressure from other European countries, the US and even the media, Germany and the ECB itself could be persuaded to bend their hitherto rigid refusal to act, in effect, as a lender of last resort.
Regardless of the rights and wrongs of Paris’s stance, if the French want more action from the ECB, then they might want to consider thinking a little more carefully about what they say. It is not just Germany and European treaties that are barriers; no central bank in its right mind is going to agree to being a lender of last resort for governments.
But that doesn’t mean that the central bank couldn’t be persuaded to step up its sovereign debt purchases on other grounds.
At a time when the European Central Bank is buying sovereign debt to stifle market panic, reserve managers at the eurozone national central banks are changing tack and buying gold instead.
This from the FT’s Jack Farchy:
European central banks have added about 25,000 ounces, or 0.8 tonnes, of gold to their reserves in the year to date, according to data from the European Central Bank and the International Monetary Fund.
That compares with average sales of almost 400 tonnes a year since 1999, as they swapped their non-yielding and unfashionable bullion for sovereign debt.
As the article notes, the bulk of the buying related to Estonia’s euro adoption, as it purchased gold to add to the ECB’s reserves. Malta also bought 3,000 ounces. That eurozone central banks have now become net buyers of the precious metal for the first time since 1985, then, is a result of the central banks not selling gold, rather than buying the precious metal in the quantities seen in emerging markets such as India.
But, even so, it is hardly a ringing endorsement of governments that eurozone central banks have turned away from their debt. And it does no favours to the ECB either.
The European Central Bank’s decision to purchase Italian and Spanish debt sparked fears that the bond buying could stoke inflation, with some believing the central bank would struggle to mop up the money used to buy the debt through its weekly fine-tuning operation.
However, the central bank is so far managing to “sterilise” – as the technique of mopping up the excess liquidity is known – with ease.
The European Central Bank bought €22bn-worth of government debt early last week and in the latter half of the previous week, taking its total purchases through the securities markets programme to €96bn.
€22bn was the largest-ever amount bought in a single seven-day period, which is no great surprise given that the ECB was buying Spanish and Italian debt for the first time (along with Portuguese and Irish government bonds). But it is higher than market expectations of €15bn.
What did the ECB get for its money?