Will the ECB’s Actions Be Enough?

As has been the case so many times during the Eurozone crisis, all eyes were on the European Central Bank (ECB) to intervene on June 5 following its executive board meeting. Eurozone inflation registered a paltry 0.5 percent in May, a problem for countries with high debt as it makes their debt burdens harder to stabilize.

ECB president Mario Draghi announced a series of measures in an attempt to reverse persistent low inflation. These measures were by the ECB’s standards bold; they would have been unthinkable even two years ago. Here are the three main actions the ECB took, and the possible outcomes of each:

  Read more of this post

Cyprus Shows Trust in ECB is Misplaced

Ever since European Central Bank President Mario Draghi said last July that the bank will do whatever it takes to preserve the euro, complacency has pervaded Europe’s single-currency area. Markets have weathered potential crises in Italy and Spain with surprising calm, secure in the knowledge that the ECB will save the day if needed.

This was always a false assumption, as events in Cyprus have made clear. There are significant limitations to the support the ECB is willing or able to offer, even to such a tiny island economy whose needs are easily affordable. Read more of this post

Did the ECB Just Warn Italian Voters Against Berlusconi?

The European Central Bank this week, for the first time, published details of its former bond-buying initiative, known as the Securities Markets Program. The timing of the release, on the eve of Italy’s Feb. 24-25 elections, is as interesting as the data.  Read more of this post

Repaying LTROs: Good News or Bad?

Research teams across Europe are busy estimating the size of the repayments the European Central Bank will accept next week on the long-term refinancing operations, or LTROs, that banks borrowed last year. I think they’re asking the wrong question.

Much more important is whether repayment will be positive or negative for the euro area, and both are possible. Read more of this post

OSI likely, but not to give Greece a new lease on life in the EZ

Ever since the introduction of PSI (private sector involvement) in Greece, there has been talk of OSI (official sector involvement) occurring down the line. Mention of OSI in Greece has only intensified since the IMF openly advocated it last week. This was not the first time the IMF had spoken in favor of Greek OSI, but the fact that it was mentioned against a backdrop of protracted negotiations between the Greek government and the troika (the ECB, IMF and European Commission) made some wonder if OSI is imminent. I do think we will see OSI in Greece, but I expect it to accompany Greece’s exit from the Eurozone rather than returning Greece to public debt sustainability within the common currency area. Read more of this post

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