Draghi Stresses Limits of ECB Tools as Pressures Mount
7 June 2012
, by Jeff Black, Jana Randow and Gabi Thesing (Bloomberg)http://www.bloomberg.com/news/2012-06-06/draghi-stresses-limits-of-ecb-tools-as-pressures-mount.htmlExcerpt:The European Central Bank may be running out of options it can stomach
With the euro area assailed by spreading recession, financial-market instability and political impasse over the direction the single currency should take,
ECB President Mario Draghi yesterday stressed the limitations of his current policy tools, from standard interest-rate cuts to bond-buying and liquidity injections.
Moves such as quantitative easing or capping bond yields to calm markets remain taboo for the ECB, which says its main job is to ensure stable prices.
“It’s clear that they are very low on, if not completely out of, ammunition
,” said Nick Kounis, head of macro research at ABN Amro in Amsterdam.
“There are options that would have a more significant effect, but they’re outside of the ECB’s comfort zone. There’s an element of helplessness
Having already cut its benchmark rate to a record low of 1%, injected more than €1 trillion ($1.2 trillion) of three-year loans into the banking system
and bought €212 billion of government bonds
the ECB is reluctant to do more heavy lifting as governments procrastinate over the reforms it deems necessary to put the monetary union on a sustainable footing. Draghi questioned the effectiveness of cutting rates further and flooding financial market with even more liquidity