Monday, 3 September 2012

It's the Politics, Stupid - not the Economics

At a closed session of the European Parliament Mario Draghi has stated that ECB bond purchases of 3 year bonds do not count as direct government assistance.

'Gli acquisti di titoli di Stato "fino a tre anni non costituiscono un finanziamento monetario agli stati", perché si tratta di un finanziamento "troppo breve per essere classificato come creazione di moneta"' (La Repubblica )

Draghi also underlined that "gli acquisti dei titoli di Stato sul mercato secondario da parte della Bce rispettano "interpretazioni dei trattati". [the acquisitions of bonds on the secondary market by the ECB respect interpretations of the treaties.]

It has been remarkably unusual to hear the slightest gossip about the work that has been going on in the ECB this summer.  Part of the reason is that what is to be announced is already provided for in the Treaties, as has been repeatedly pointed out.  Media assertions that there would need to be fresh treaty provision which would be subject to member-state veto has been impervious to this reality and wholly falsely-based expectations of what might be going to be  attempted have been  raised.

The only comment heard here has been that we are in the hands of a remarkable politician and highly skilled diplomat: this is not really a financial problem but a political and sequencing problem. Mr Draghi is a fine economist but those are not the skills currently in use as the Eurozone negotiates the recession.

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