Yesterday Mario Draghi gave his quarterly report to the European Parliament’s Economic and Monetary Affairs Committee. His remarks on current economic and monetary conditions contained no surprises, and he said nothing that would change the perception of his earlier comments to the effect that QE will continue, despite an awareness of possible side effects, which would have to be carefully monitored.
It was his comments on Greece that were of the most interest. He is adamant that the role of the ECB is confined to interpreting the rules and applying them as far as the Greek position is concerned. Any concessions in the terms of the current bailout program are purely for the consideration of the Eurogroup, so ultimately with euro area Member States. “Hence”, he said, “this is a political decision that will have to be taken by elected policymakers, not by central bankers”.
This is interesting because, as late as last week at the G7 summit in Bavaria, both Francois Hollande and Angela Merkel were saying that Greece needed to finalise technical talks in order to make progress, but that time was running out. Is there an element of buck passing here? The answer is: not really. The various comments of the ECB president and the leaders of Germany and France are a response to the strategy being adopted by the Greek government under Mr. Tsipras, which is centred on attempting to side-line the ECB, the Commission and the IMF, and to appeal directly to the governments of the other member states, in particular those of Germany and France.
European Court of Justice Outright Monetary Transactions (OMT) bond buying ruling is due this a.m.
A ruling from the European Court of Justice on a case referred to it by the German Constitutional Court is due out this morning. A determination that the purchase by the ECB of sovereign bonds of a member state that is locked out of the normal bond market constitutes direct monetary aid to that country, and so is contrary to EU treaties, would have serious implications for the operation of the ECB. It has argued that this ability is akin to adjusting interest rates, which it is manifestly allowed to do, and that the function of buying sovereign bonds on the secondary market in emergency situations is so important that not being able to do so could place even the continuation of the Single Currency in question.
As if the Greek situation was not bad enough.