Fra Guardian:
Writing before this weekend’s meetings, Philip Shaw, economist at Investec went over what the week ahead holds for the ECB, particularly when president Mario Draghi holds his press conference after Thursday’s monetary policy meeting.
Shaw believes a potential Grexit will turn out to be a real test of what Draghi means by “whatever it takes”.
“The absence of a deal would, in our view, begin the path to Grexit. In that case, the press conference will probably be dominated by the ECB’s role in handling the situation. On the ECB’s specific role in a Grexit scenario, Mr Draghi said this week that if no deal is struck this weekend, the ECB will not extend Emergency Liquidity Assistance (ELA) for Greek banks.
That could trigger a banking collapse as soon as Monday. On Thursday, questions will be asked on the ECB’s next steps on intervention, including any role in transitioning to a separate currency.
Perhaps more significant will be comments Mr Draghi will no doubt make on how ECB policy can limit Grexit contagion to financial markets and Eurozone economies more generally. We should expect reassurances on the extent of the policy firewall in place, including the OMT program, the EFSF and QE. On the latter, Mr Draghi pointed out that if circumstances allow, the Governing Council would “reconsider the size, the timing, the design of the [QE] programme”.
Contagion seems limited so far – for example, alongside encouraging eurozone-wide indicators, peripheral bond yields have not blown out (Spanish and Italian ten-year sovereign bond yields are both at 2.2%). But a Grexit could make things worse, posing a true test of whether the ECB is willing to do “whatever it takes” to save the Euro”
