ECB set to up the ante

The European Central Bank looks set to dig its heels in this week and refuse any more easy money for governments as the political resolve to rein in deficits shows signs of crumbling, analysts say.

The ECB's regular monthly policy-setting meeting -- held in Barcelona on Thursday instead of Frankfurt -- could turn into something of a showdown as patience wears thin over government back-tracking on fiscal consolidation.

Since the last meeting in April, there has been a resurgence in the eurozone sovereign debt crisis even as everything suggests that the 17-nation eurozone has fallen into recession.

In the face of this, a growing number of governments are beginning to baulk at the belt-tightening measures being prescribed under the recently agreed "fiscal compact," complaining that austerity risks undercutting growth.

There have been massive protests in Greece, just bailed out again, as well as in embattled Italy and Spain.

In France, leading presidential candidate Francois Hollande has called for a re-negotiation of the fiscal compact to include growth measures.

ECB chief Mario Draghi caused a stir last week when he called for a "growth compact" to complement the fiscal compact, with some observers suggesting the central bank could be softening its stance.

But an ECB spokesman insisted that Draghi's comments marked no policy change and central bank watchers, alert to every new nuance in "ECB speak," saw it more as an attempt to put the onus back on politicians.

Draghi implied as much himself when he said the ECB could only do so much and "the ball is entirely, squarely in the court of governments and banks."

"When Draghi advocated a 'growth compact', he was referring to a need for governments to enact structural reforms to improve productivity and competitiveness in the long term," said Jennifer McKeown at Capital Economics.

"He has given no indication that the ECB will step in with a short-term boost," the analyst argued.

"Indeed, his comments even seem aimed at putting the ball into governments' court again. Not only should they do more to improve their public finances but they should take responsibility for improving the underlying economic outlook."

The ECB has been quick to take on a fire-fighting role from the very beginning of the crisis.

It quickly reversed last year's rate hikes to bring eurozone borrowing costs back down to an all-time low of 1.0 percent and embarked on a hotly contested programme of buying up the bonds of debt-mired countries so as to ease their borrowing costs.

Most recently, in two so-called long-term refinancing operations (LTROs) in December and February, it pumped more than 1.0 trillion euros ($1.3 trillion) into the banking system in a bid to avert a dangerous credit squeeze.

At the same time, however, ECB officials have insisted that such measures are only temporary and cannot cure the root cause of the crisis -- profligate spending by governments.

RBS economist Nick Matthews suggested that, with the meeting being held in Spain, seen as most at risk of next needing a debt bailout, Draghi could face questions over the possible reactivation of its SMP bond purchase programme to help ease tensions in Spanish bond markets.

However, "we continue to believe the ECB will act in a reactive rather than proactive way, with reactivation of the SMP occurring only at a point where the situation has deteriorated significantly and pressure is much greater than that witnessed in recent weeks," Matthews said.

The so-called Securities Markets Programme has been controversial from the start, with two prominent German ECB members resigning because they saw it as a way for the central bank to finance governments, something which is banned under ECB statutes.

Draghi conceded that the ECB was treading a very fine line with the programme but has insisted it was "neither eternal nor infinite."

He has declined to say whether the programme, which has lain dormant for the past five or six weeks, would be re-activated to help Spain.

Commerzbank economist Rainer Guntermann believed "ECB support (is) further off than many believe.

"Indeed, recent comments from ECB council members further substantiate the notion of no imminent change in the ECB stance," he said.

UniCredit analyst Marco Valli agreed.

"The ECB is going to stick to its wait-and-see stance. The bar for further ECB intervention -- either conventional or unconventional -- remains high," he said.

Loading...

Editor’s note:Yahoo Philippines encourages responsible comments that add dimension to the discussion. No bashing or hate speech, please. You can express your opinion without slamming others or making derogatory remarks.

  • Philippines calls on ASEAN to urge China to halt land reclamation
    Philippines calls on ASEAN to urge China to halt land reclamation

    The Philippines called on its Southeast Asian neighbours to unite in urging China to halt reclamation of land in the South China Sea, but the call failed to raise widespread support ahead of a regional summit. China claims 90 percent of the South China Sea, which is believed to be rich in oil and gas. Its claims overlap with those of Brunei, Malaysia, the Philippines, Vietnam and Taiwan. Recent satellite images suggest China has made rapid progress in filling in land in contested territory …

  • Indonesia defiant as UN leads condemnation of looming executions
    Indonesia defiant as UN leads condemnation of looming executions

    Indonesia on Sunday signalled it was determined to push ahead with the execution of eight foreign drug convicts, despite a growing wave of global condemnation led by United Nations chief Ban Ki-moon. Authorities on Saturday gave formal notice to the eight -- from Australia, Brazil, Nigeria and the Philippines -- that they would be executed by firing squad imminently, along with an Indonesian prisoner. The group have been moved to the high-security prison island of Nusakambangan, where …

  • Philippines urges ASEAN to stop China in South China Sea
    Philippines urges ASEAN to stop China in South China Sea

    KUALA LUMPUR, Malaysia (AP) — The Philippines on Sunday urged its fellow Southeast Asian countries to take immediate steps to halt land reclamation by China in the disputed waters of the South China Sea, warning that failure to do so will see Beijing take "de facto control" of the area. …

  • Philippines urges Southeast Asia to rally to halt China reclamation in disputed waters
    Philippines urges Southeast Asia to rally to halt China reclamation in disputed waters

    The Philippines on Sunday called on neighbouring Southeast Asian nations to push for an immediate halt to China's reclamation in the disputed South China Sea ahead of a regional summit. China claims 90 percent of the South China Sea, which is believed to be rich in oil and gas, with overlapping claims from Brunei, Malaysia, the Philippines, Vietnam and Taiwan. Recent satellite images suggest China has made rapid progress in building an airstrip suitable for military use in contested …

  • President to appeal for Filipina's life at Malaysia summit
    President to appeal for Filipina's life at Malaysia summit

    The Philippine president said Sunday he would appeal for mercy for a Filipina who is due to be executed in Indonesia in two days' time. President Benigno Aquino said he would take the opportunity to seek clemency for Mary Jane Veloso, who is due to be put to death on Tuesday, while in Malaysia for a regional summit Monday. "Once I am there, I will try to speak to President Joko Widodo of Indonesia to appeal once more for her case," Aquino said. She was arrested in 2009 with 2.6 kilograms …

  • U.N. chief appeals to Indonesia not to carry out executions
    U.N. chief appeals to Indonesia not to carry out executions

    United Nations Secretary-General Ban Ki-moon appealed to Indonesia on Saturday not to execute 10 prisoners, including two Australians, for drug-related crimes. Indonesia has so far informed seven of the 10 death row inmates, including the Australians and one Nigerian, that they will be executed in a matter of days, possibly as soon as Tuesday. Nationals from Brazil, Ghana and the Philippines are also on Indonesia's death row. A temporary reprieve was granted to a French citizen who will not …

  • Beijing 'poised to take de facto control' of S. China Sea'
    Beijing 'poised to take de facto control' of S. China Sea'

    Beijing is poised to take "de facto control" of the South China Sea, the Philippines warned Sunday, but its call for a robust Southeast Asian response at a regional summit was shot down. Vietnam, the Philippines, Malaysia and Brunei claim parts of the strategic body of water, but Beijing claims nearly all of it, and its increasingly strident territorial assertions have caused concern in the region and beyond. "(China) is poised to consolidate de facto control of the South China Sea," …

  • US eyes access to Phl bases in 8 locations
    US eyes access to Phl bases in 8 locations

    The United States has asked for access to Philippine military bases in eight locations to rotate troops, aircraft and ships as Washington shifts its forces to Asia and as China expands its military presence in the South China Sea. US Defense Secretary Ash Carter, in a speech in Arizona, has outlined Washington’s next phase in its Asia “pivot,” deploying its most sophisticated destroyers, bombers and fighters to the region. The Asia “pivot” has already seen US Marines rotating through the …

POLL

Should Aquino be held accountable over the Mamasapano operations?

Loading...
Poll Choice Options