The awaited meeting of the ECB chaired by Mario Draghi confirms the expectations of an interest rate cut of 25 basis points to 1% (the second cut since the start of his mandate) and of a package of unconventional measures ("broad and complex", defined Draghi) to facilitate the circulation of liquidity between banks. And therefore better and greater access to credit for households and businesses. The discussion was heated, Draghi said, and the decisions were taken by majority vote, it is unthinkable that there could be unanimity on all of 9-10 measures. Between decisive interventions, two refinancing operations to give financial institutions unlimited liquidity for 36 months and the expansion of the securities that banks can offer as collateral with the inclusion of ABSs that have at least a single A rating (in addition to those already accepted). The euro area, Draghi said, is subject to high uncertainty and intensified market tensions.
The Milan Stock Exchange reacts positively after the announcement of the unconventional measures and turns up by 0,34%. But the effect is short-lived: the Ftse Mib deflates the race as more details arrive from Draghi's press conference. Milan is thus back in the red and is down by 3%. The other European markets are also moving in negative territory: the Cac falls by 2,14%, the Dax by 1,51%, the Ftse 100 by 0,42%.
ECB CUTS 2012 GDP ESTIMATIONS
INFLATION ABOVE 2% FOR SEVERAL MONTHS
The cut in the estimates on the 2012 GDP of the euro area expected between -0,4% and +1% against the estimates of three months ago at +0,4% and 2,2% weighs heavily. In 2011 the GDP is expected to grow between 1,5% and 1,7% compared to the previous estimates between +1,4 and 1,8%. Forecasts on inflation have also changed: for 2011 the ECB expects an increase in consumer prices of between 2,6% and 2,8% (2,5%-2,7% three months ago) and for 2012 an increase between 1,5% and 2,5% (1,2%-2,2% three months ago). Inflation which will therefore remain above 2% for several months because it is influenced by energy and commodity prices but which should subsequently decrease by the end of 2012 because in the current context of uncertainty the pressures on prices, wages and costs remain moderate .
But the market is also disappointed by the lack of indications on new government bond purchases. The European Central Bank "has never discussed the possibility of putting a limit on yields" or on the spreads of countries in difficulty, Draghi replied when asked if the ECB is preparing a relaunch of government bond purchases after the implementation of a "budget contract" in the EU, removing the idea that the ECB can assume a role of lender of last resort. For Draghi, a new "budget agreement" between the countries of the European Union that commits to fiscal consolidation is in any case a key element for restoring stability to the financial markets. After the press conference, the Btp-bund spread remained above 400 basis points with a yield differential between the two bonds of 402,5 points with a 6,11-year yield at XNUMX%.
ITALY, INEVITABLE TAX CONSOLIDATION
ENCOURAGING MOVEMENT, NOW GROWTH
On the Italian situation front, Draghi expressed himself positively on Monti's maneuver which, he says, "contains very encouraging elements" and will certainly strengthen confidence. Fiscal consolidation, he specified, is inevitable, there isn't much choice and it is true that in the short term it is a measure that contracts the economy. But the question is, he continued, what can be done to compensate for these effects? Growth is now key and the framework for reforms to increase competitiveness, job creation and growth is essential.
LEGALLY DIFFICULT LOAN TO IMF
NO LIKELY THAT THERE WILL BE THE END OF THE EURO
Then there is the issue of the role that the ECB can play in the European crisis. In recent days there had been talk of financing the IMF by the ECB which would in turn help countries in difficulty to circumvent the ECB's treaty constraints. It is "legally very complicated" to hypothesize a loan from the ECB to the IMF to finance countries in difficulty in the euro area", commented Draghi, the point is to "respect the spirit of the European treaties" which prevent the Eurotower from financing the member countries. Is it the case to prepare for the hypothesis of the bankruptcy of the euro through a central bank plan? "It would be imprudent - comments Draghi - to create a contingency plan on a contingency that is believed to have no probability". The euro rose to 1,3420 against the dollar after the ECB conference.
