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The ECB is considering capping peripheral bond yields by stepping in to buy the debt when its...

The ECB is considering capping peripheral bond yields by stepping in to buy the debt when its spread to German paper rises above a certain threshold, reports Der Spiegel. Draghi has complained that monetary policy transmission is broken, i.e., the ECB eases yet financial conditions tighten further in the periphery - this gives him his opening to buy government debt. A decision could come at the bank's September policy meeting.
Comments (15)
  • Paulo Santos
    , contributor
    Comments (18842) | Send Message
     
    I doubt Germany would allow this, it would be an open door towards infinite monetization.
    19 Aug 2012, 06:54 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9933) | Send Message
     
    PS,
    Could not agree more. Draghi is really pushing his luck these days, and may someday find himself in charge of an ECB that is the central bank to only the weaker southern EU countries. As John Hussman has suggested, the logical alternative may well be for Germany, Holland, Finland, and the stronger north to just create a separate northern EU with their own currency block. And then let Draghi print as many euros as he wants and buy as many bonds as the wants. The south can then devalue themselves into competitiveness again. Albeit at substantially reduced standards of living.

     

    As Hussman has pointed out, leaving the euro with the weaker south could help with lots of technical and potentially expensive issues such as contracts, denomination, legal issues, etc.

     

    Perhaps the big question is what happens to France and which way would they choose to go. Maybe France chooses to be the big dog in the weaker southern block, and attempt to reassert themselves in such a manner.
    19 Aug 2012, 07:19 PM Reply Like
  • Good Captain
    , contributor
    Comments (456) | Send Message
     
    Looking back at the past 12 months or so, Mario's comments are almost to be expected. Although his power in fact is ultimately determined by the Germans, his word still carries hope to many. His problem is in the durability of his words to instill and maintain confidence attrites by the week. W/in the next 24-48 hours look to someone w/ authority in the German government to roll-back Draghi's declaration in part, or in whole.
    19 Aug 2012, 09:26 PM Reply Like
  • schatzl
    , contributor
    Comments (391) | Send Message
     
    Yep, knowing how the French mourn the loss of the "Grande Nation" that would be an opportunity to reassert European dominance. No need to follow the "German way". Hollande does increasingly appear to avoid austerity or reforms, so the only realistic direction he can go is south.
    20 Aug 2012, 05:38 AM Reply Like
  • The Independent Investor
    , contributor
    Comments (1439) | Send Message
     
    Well, this is the worst policy idea i've ever seen - why would any country reduce spending and writeoff debt if Germany will collateralize inifinite debt - German politicians would never support this - essentially it would be Germany writing a black check to the PIIGS with no concessions
    19 Aug 2012, 07:21 PM Reply Like
  • CautiousInvestor
    , contributor
    Comments (3044) | Send Message
     
    This is at best wishful thinking. Draghi has already made it known he will only buy bonds in the secondary market after a country in need (Spain, Italy) make a formal request to the EFSF for assistance with primary issuance. And as others have noted, Germany would not approve a license to print money indefinitely to artificially narrow spreads without serious conditionality.
    19 Aug 2012, 08:19 PM Reply Like
  • Dirtydozen011
    , contributor
    Comments (63) | Send Message
     
    When Draghi wants to do something, he should stop and do the opposite. This would bring him 100%success rate
    19 Aug 2012, 08:22 PM Reply Like
  • Mike Maher
    , contributor
    Comments (2542) | Send Message
     
    From a German paper, with no sources named. Probably little more than political games, since Europe likely wont give ground without reform from the member-states.
    19 Aug 2012, 08:25 PM Reply Like
  • Deepv
    , contributor
    Comments (401) | Send Message
     
    You shorts sure are whiny!!!!!
    19 Aug 2012, 08:35 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9933) | Send Message
     
    LOL, is that whiny!!! as in compared to the corporate welfare bums that keep begging and pleading for bailouts, money printing, continuous central bank interventions, ever decreasing corporate taxes, and never ending stimulus flowing into corporate coffers.

     

    Or is that whiny!!!! as in compared to overpaid and incompetent EU bureaucrats & politicians continually attempting to hand out favors to crony capitalists always working to stack the game in their favor. Maybe the markets ought to try banning long sales (instead of banning short sales) for a few months and see how that works out for markets.

     

    Or maybe that just whiny!!! as in we don't believe in real free markets, real capitalism, or real price discovery. We are the entitled class and have every right to be major crooks, major fraudsters, and to make up all the rules as we go along.
    19 Aug 2012, 09:15 PM Reply Like
  • Mike Maher
    , contributor
    Comments (2542) | Send Message
     
    Haha thats hilarious, well done UI
    19 Aug 2012, 09:40 PM Reply Like
  • Lloyd Blankfein
    , contributor
    Comments (0) | Send Message
     
    Germany would accept this.

     

    Wall Street would continue to feed from the muppets and there isn't anything you can do to stop it.
    19 Aug 2012, 10:27 PM Reply Like
  • ssl23
    , contributor
    Comments (120) | Send Message
     
    If the ECB buys Spain, Italy bonds and sells German, Dutch, paper that is not creating any new euro's....similar to operation twist in the US...thus no monetization of debt, no QE.

     

    If it works then it could buy more time for Spain and others.
    This could be a game changer if the ECB and Germans both are behind it.
    19 Aug 2012, 09:19 PM Reply Like
  • No Moss
    , contributor
    Comments (120) | Send Message
     
    The premise behind this is that peripheral European countries (the famous PIIGS) won't be able to repay their sovereign debt (debt instruments issued in the name of the government) if interest rates are too high. The reality is that they won't be able to repay their debt anyway. There is both a demographic crisis (a rapidly aging population) and a recession in most of these countries. The recession will be exacerbated by austerity measures.

     

    Keeping the interest rates low by creating an artificial demand for bonds might work for a while, but two factors form the reality that cannot be avoided. First, the wave of bond issuances will continue as bonds auctioned at reasonable rates a few years ago reach maturity and have to be replaced. Second, governments or banks willing to create the artificial demand will soon discover that they can only get their money back by buying more and more debt. They will be repaying their own investment.

     

    Maybe we should call this the Draghi Scheme.
    19 Aug 2012, 11:01 PM Reply Like
  • divinecomedy
    , contributor
    Comments (466) | Send Message
     
    I wonder WHERE is this mulling going to be done. Will it be another world class resort perhaps? You can't argue that the bankers are not doing their part to save the economy through all this mulling part 1, 2, 3, etc in very nice places. After all, you can just charge it to the Greeks and then write them off later on.
    20 Aug 2012, 05:49 AM Reply Like
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