Europe — Can Draghi Hint At More?
ECB President Mario Draghi will take to the podium three times next week and this may generate
expectations that something material may be afoot by way of communicating policy expectations. His
first appearance is on Saturday in Washington and includes a press conference as the IMF annual meetings
wrap up. He then speaks in Frankfurt twice on Wednesday at two ECB-sponsored events. It’s possible he
takes the debate at the October 2nd ECB meeting to the streets in an effort to counter public criticism of
recent ECB initiatives by Bundesbank President and ECB Governing Council Member Jens Weidmann.
Weidmann recently observed that “I see a risk that we will overpay for these assets [ed. ABS]. That would
represent a transfer of risk from the banks and other investors to the central banks and ultimately to the
taxpayers. What I cannot support or accept are measures that see the central bank straying into economic
policy or fiscal policy territory. I have made it clear on many occasions that there are certain issues for which
elected politicians, and not the Eurosystem, need to deliver solutions. The central bank cannot, and should
not, make up for a lack of political resolve.” While I appreciate the gravity of the situation facing the ECB, I
cannot help but sympathize with Weidmann’s case as ECB policy has crushed the term structure of rates,
taken down any incentive to lend with it, thereby made a lending recovery more elusive, and in the process
stalled regulatory and fiscal reforms through the easing of market pressures. Weidmann’s opposition is joined
by Banque de France Governor Christian Noyer but for very different reasons in that Noyer believes the
Banque de France’s expertise in ABS markets is being unwisely bypassed in rolling out new stimulus and
therefore that raises execution risks
