Investor's window  |  July 27, 2012 11:06:14

The ECB is preparing another party credit?

Yesterday by Mario Draghi to hear that the ECB will do whatever is needed to calm the situation in Europe. Almost immediately after the European stock markets crazy and the Spanish IBEX for example, grew by more than 6%. Even more interesting note, but the day before Draghim he said in an interview with Bloomberg TV Ewald Nowotny, the Austrian economist, politician and former member of the Governing Council of the ECB.

Asked whether the European Stability Mechanism (ESM) to obtain a banking license, is said that he can imagine something like that.This is the first one of the members of the Governing Council indicated that the European Central Bank to give a green European debt monetization.  

With a banking license in his pocket ESM would gain access to almost unlimited resources of the European Central Bank. Since he could draw on liquidity in exchange for junk bonds member countries, which would itself be rescued. The newly issued bonds would therefore be ended through ESM directly in the balance of the ECB and the euro area is the problem the same opportunity to obtain cheap financing, which today, for example, the Spanish bank, which, without lines of credit from the ECB has long since collapsed.

The impact of this measure to markets could be huge. Significant reduction in credit spreads, stock prices, strengthening of the euro and possibly economic recovery (albeit slight) in countries such as Spain and Italy, which would benefit from a decrease in long-term interest rates. At the same time, however, were another in a series of short-term measure which does not address the underlying problem (debt itself) and rather would only allow countries, companies and households indebted to a little longer and a little more.  

Although the ECB has so far refrained from aggressive step and pressured politicians to cope without it. Threatening situation in the market with Spanish and Italian bonds this week seems shuffled cards. As many times can therefore begin to show that what was true yesterday may not apply tomorrow.

Maybe it's time to slowly prepare the next wave of cheap money from intoxication, which can for a few months on the market to re-create the illusion that we can actually resolve everything with the help of paper, ink and a lot of quality printer.

Jaroslav Brychta

Jaroslav Brychta - Principal Analyst X-Trade Brokers

  • He graduated from the Economic Policy at the Silesian University in Opava. The XTB worked since 2007, currently the chief analyst. It mainly deals with the analysis of exchange rates, as well as bonds, the banking sector and monetary policy. Their professional articles and interviews contributes to most major media.
  • XTB logo X-Trade Brokers(XTB) is an international brokerage house that provides its clients with professional trading conditions for forex, commodities, stocks and options. Continuously improves its services, as evidenced by numerous international awards and titles and confirm it by Broker and Forex broker of the year, acquired the investment summit MoneyExpo the 2012th

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