The new head of the European Central Bank (ECB), Mario Draghi, officially denied weeks of gossip that the ECB is going to print more euros to help bail out European countries at risk of defaulting on sovereign debt.

Following last night’s governing council meeting, where the ECB announced another 25 bps reduction in interest rates to 1.0% as well as new measures to help Europe’s banks only.

To support banks’ liquidity, the ECB announced four measures:

• “First, to conduct two longer-term refinancing operations (LTROs) with a maturity of 36 months and the option of early repayment after one year.”
• Second, to increase collateral availability by reducing the rating threshold for certain asset-backed securities (ABS).
• Third, to reduce the reserve ratio, which is currently 2%, to 1%. This will free up collateral and support money market activity.
• Fourth, to discontinue for the time being, the fine-tuning operations carried out on the last day of each maintenance period. This is a technical measure to support money market activity.”

As for European countries at risk of defaulting on sovereign debt, Draghi declared at the post-meeting press conference “we have a treaty which bans monetary financing (of government debt) … the treaty embodies the best tradition of the Bundesbank (German Federal Bank) … the ECB’s primary remit is price stability”.

It’s not likely the rumoured “trick” to get around the EU Treaty will be implemented either.  This is where the ECB or national central banks lend to the International Monetary Fund (IMF) and the IMF turns around to buy Eurozone bonds.  Maybe later?

So now we’re back waiting on yet another European summit to conclude where rumours could be officially confirmed, denied or kicked further down the road.

Grant

Tags: Bundesbank, ECB, Mario Draghi