Rate cuts, bond purchases to lower spreads in Spain and Italy, new liquidity injection on the LTRO model? What will be the next moves of the ECB after Mario Draghi's wing shot today in London with which he said that the spread is also a problem of the ECB itself which, in turn, is ready to do everything to save the 'EUR?
The first test is imminent and concerns Spain. According to monetary sources, Madrid's request to activate the anti-spread shield is imminent, which would quickly allow the old state-saving fund (EFSF) to purchase Spanish bonds on the primary market, with less substantial disbursements than on the secondary market. In exchange, Spain would sign a series of commitments but not asphyxiating bonds as those imposed for the bailout of Greece, Ireland and Portugal. In this case, the bonds would be purchased by the old state-saving fund, but the direction and evaluation of the ECB will also be fundamental in view of the transition from the old EFSF to the new ESM fund, if and when the German Constitutional Court has ruled on its adequacy September 12th.
In all these passages and throughout the transition process from one state-saving fund to another and above all in view of the goal of the banking license that even a hawk like the governor of the Austrian central bank, Edwald Novotny, now puts in the account for the future ESM fund the direction and role of the ECB will be decisive. After all, a banking license for the new state-saving fund means access to the coffers of the ECB which will be able to grant it unlimited resources. Pay attention to this crucial adjective: "Unlimited" means that the European institutions respond to speculation and can face any eventuality with unprecedented firepower, mortifying speculative appetites and probably crushing them definitively at the mere announcement.
But in addition to this very delicate institutional and financial supervision, the ECB will soon strike its blows with very concrete acts. Between August and September and, if necessary, Draghi will decide by majority. The reduction of rates is already in the pipeline but if, for one reason or another, the cumbersome mechanisms of the state-saving funds get stuck or stretch over time, it will be the ECB that attacks the emergency and intervenes on the secondary market to buy the bonds of Spain and Italy i reduce the spreads that distort monetary policy. Among the possibilities there is also a new injection of liquidity (a kind of LTRO 3), but, beyond the instrumentation to which it will resort, it is the strength of Draghi's euro-saving message that makes the difference and can give a push to the crisis with a substitute role with respect to the inadequacy and slowness of European politics that the other SuperMario (Monti) alone cannot erase.
