Courtesy of Mish.
The markets gave a high-five to an ECB statement last week by Mario Draghi “The Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period of time.“
I fail to see why this was news even though the ECB has never issued such a pledge before. Did anyone really think the ECB was going to hike rates soon?
For further discussion, please see Communication Only “Tool” Left
A more realistic message came from German Central Bank president Jens Weidmann who stated the “ECB Cannot Solve Euro Zone Crisis”
AIX-EN-PROVENCE, France (Reuters) – The European Central Bank cannot solve the euro zone crisis, Bundesbank chief Jens Weidmann told economists on Sunday, pressing the bloc’s governments to get their economies in shape and tighten their fiscal rules.
Weidmann addressed an economists’ conference in Aix-en-Provence, southern France, only three days after the ECB broke with precedent by declaring that it intended to keep interest rates at record lows for an extended period and may yet cut further.
“Monetary policy has already done a lot to absorb the economic consequences of the crisis, but it cannot solve the crisis,” Weidmann said in his speech.
“This is the consensus of the Governing Council. The crisis has laid bare structural shortcomings. As such, they require structural solutions.”
FISCAL RULES
While he does not see sufficient support in the euro zone for governments to give up sovereignty on fiscal matters to forge a fiscal union to prevent such crises in the future, Weidmann pressed them to stiffen Europe’s fiscal rules.
“To fully unleash the common currency’s potential, efforts are needed on two fronts: structural reforms as well as the abolition of implicit guarantees for banks and sovereigns (government bonds),” Weidmann said.
“In addition to stronger rules, we need to make sure that in a system of national control and national responsibility, sovereign default is possible without bringing down the financial system. Only then will we really do away with the implicit guarantee for sovereigns.”…
