Markets are waiting for Draghi

German reactions to the new bond purchase program that will be announced today by the European Central Bank are ongoing.

 

It was the turn of German Finance minister Wolfgang Schäuble today, who asked the ECB not to exercise politics, stressing that the forthcoming decision should not be beyond the scope of the bank’s responsibilities.

 

Reaction started after the revelation by Bloomberg that the ECB president plans to announce the unlimited purchases of bonds for the countries in financial trouble.

 

Schäuble said he is confident that the ECB board "knows that the mission of the bank focuses primarily on ensuring the stability of prices." In an interview with ZDF he said that "the funding of countries is not a responsibility of the Central Bank," while refuting press reports saying that Bundesbank president Jens Weidmann is isolated on the ECB board after his criticism of Mario Draghi’s plans.

 

He also criticized the publication of parts from the consultation meetings of ECB bodies.

 

According to information from Bloomberg, ECB president Mario Draghi is planning for unlimited bond purchases for countries with financial problems. According to what ECB executives leak, the plan will probably be called "total monetary transactions." The main idea is unlimited three-year bond purchases for the countries of the South in return for their meeting the commitments in their fiscal adjustment programs. In fact, the Central Bank will be able to sell the bonds if the countries do not meet their deficit and debt commitments.

 

The leaking of this information, particularly the word "unlimited", was enough to boost the purchases of 3-year bonds with an increase in prices and a drop in yields on Spanish and Italian bonds. This rise was followed by the Greek bonds (and the stock market) with a drop of 21% in performance and 23 to 24% in decade prices.