In his testimony in the European parliament, Mario Draghi continued passing the ball to the governments’ court. The president of the ECB gave advice about needed reforms, gave marks to different countries, bashed the “unusable” EFSF, and also rejected criticism that the ECB is not transparent.
On the monetary policy front, Draghi said that the ECB remains ready to act if necessary. So, more rate cuts and LTROs are on the cards. EUR/USD remains depressed in low ground.
- The EFSF was designed in a way that was “very hard to use” – more criticism on the governments. “EFSF was a big firewall, but not usable”.
- Draghi had good words to say about Ireland, Portugal, Spain and Italy. Greece wasn’t mentioned. “The euro is here to stay”.
- The new ESM is more flexible.
- Recent decisions try to break the link between sovereigns to banks, even if more could be done.
- Draghi rejected a call for more supervision on the ECB, and insisted it should stay independent.
- “A fiscal union cannot be a transfer union” – this is what the Germans would like to hear.
- Q: Why don’t we publish the minutes? Because we want to preserve the independence of every central bank. This protects the process and the independence.
Last week, the European Central Bank cut the main lending interest rate to a new historic low o 0.75% and eliminated the deposit rate: cutting it to 0% from 0.25%.
Together with Draghi’s pessimistic words about the materialization of downside risks, sent the euro tumbling down.
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