Jean-Claude Trichet is to keep the onus on governments to solve the debt crisis as the European Central Bank buys bonds politicians to gain time to reduce the deficit.
Warning European Union leaders can not rely on "benign neglect" to quell market turmoil, Trichet, ECB president, is deploying a two-pronged strategy to alleviate roiled markets. The bank made with Portuguese and Irish bonds again today after Trichet said yesterday investors that policy makers delay the withdrawal of emergency liquidity.
The ECB wants to see governments take the initiative to quell the crisis that threatens to spread to Spain from Ireland and Greece. With Trichet yesterday without reaching announce more far-reaching measures, the risk is that the crisis can be removed and the ECB will have to be done if politicians do not. Trichet meets French President Nicolas Sarkozy later today.
"Trichet sees no quick and easy solution," said Axel Merk, president and chief investment officer of Merk Investments LLC in Paolo Alto, California. "The ECB is more reluctant to intervene too much in the markets as that would take political pressure to move forward with reform."
Purchases of the ECB, which intensified during the Trichet press conference in Frankfurt yesterday, have caused an increase in bonds through the periphery of the euro region.
The extra yield investors demand to hold bonds Portuguese 10-year German bonds fell today below 300 basis points for the first time since August. Ireland yields fell 28 basis points to 8.51 percent after falling 38 basis points yesterday.
Market Risk
Spanish production of 10, who jumped to a record euro was 5.67 percent on Nov. 30, was at 4.59 percent at 10:41 am in London. The euro rose 0.4 percent to $ 1.3265 today.
While Luigi Speranza, an economist at BNP Paribas SA in London, said the ECB again to the "minimum" and may fail to calm markets, Gilles Moec of Deutsche Bank says the ECB is to maintain "a bit of dry powder. "
"The message is that the position of the investors of greatest tension in peripheral yields do so at their own risk," said Moec.
ECB Governing Council met to set monetary policy as investors debate whether politicians have the will or resources to stem the crisis after November 28 rescue Ireland could not placate the markets.
Trichet went some way to provide relief to say that the ECB will keep the banks providing funds for whatever they want at a fixed interest rate for seven days, one month and three months until the first quarter. The move marked a change in policy from November, when Trichet said the ECB will tighten access to cash.
"The high uncertainty '
"The uncertainty is high," Trichet said after the ECB left its benchmark interest rate by 1 percent. "We have tensions and we have to consider."
Trichet, however, refused to say whether the ECB will increase or expand their purchases of bonds and said the central bank will maintain sterilization, unlike similar programs of the Federal Reserve and the Bank of England.
The refusal to be more aggressive reflects a belief in the ECB debt problems of Europe can only be solved by governments embrace austerity and providing more liquidity will only delay the day of the trial, said Peter Dixon, economist at Commerzbank AG in London.
"The ECB is effectively put a plaster on many of the problems to ensure that markets continue to function, but this requires governments to sit down and think more clearly," said Dixon. "Ultimately the problems we face are for governments to resolve not central banks."
EU Options
Economists say that the EU's options include the promotion of the 750 million euros ($ 992 billion) bailout fund into a temporary or asset purchase program, reduce interest rates on loans rescue or joint bond issue for the 16 euro countries.
Trichet, who said at a conference today in Paris that Europe needs a "quasi" fiscal union, will meet with Sarkozy in the French capital at 5:15 pm to discuss the situation in the euro area. "
The ECB may have been reluctant to go further to support Spain, Greece, Ireland and Portugal, for fear of being seen as a rescue tool for politicians, damaging their independence. Bundesbank President Axel Weber, one of the main to replace Trichet, next year, objected to the decision to start buying bonds in May and has since called for the program was canceled. Says poses "risks to stability" and that there is no evidence that it works.
"Overwhelming majority"
In a sign of 22 members of the ECB, the Governing Council remains divided, Trichet said the bonus plan had enjoyed only the support of an "overwhelming majority" and the expansion of liquidity measures had been adopted by "consensus." Weber, who spoke at a separate event in Frankfurt yesterday, said he had nothing to add to comments made by Trichet.
The ECB has already increased its activity, last week the purchase of most of the bonds in two months. In general, however 67000000000 € total purchases so far, well below the amounts purchased by the Bank of England and Federal Reserve.
With the ECB are immersed in the markets, Trichet said the EU governments could increase rescue fund created earlier this year.
Asked about the size of the cash pool in Paris today, Trichet said that "everything they do must be proportionate to the size of the challenges."
"This is true in all aspects, both qualitative and quantitative" he said. "They have to go as far as possible and be as efficient as possible."
The risk is that Trichet reasons fall on deaf ears, with governments telling you "not arrived, where they still are considering a bold move," said Nick Kounis, chief economist of the euro-region of ABN Amro NV in Amsterdam.
"Not all the dangers that the crisis is more acute," he said.
0 comments:
Post a Comment