Monday, September 3, 2012

Mario Draghi Gave A Big New Hint About What The ECB Has Up Its Sleeve

European Central Bank President Mario Draghi told lawmakers he would be comfortable buying bonds with maturities of up to about three years, said Jean-Paul Gauzes, a member of the European Parliament.
Purchasing short-dated bonds doesn’t constitute state financing, Draghi said during a closed-door parliamentary session in Brussels today, Gauzes told reporters afterwards.
Just to step back a second...
On Thursday, September 6, Mario Draghi is expected to announce details of how the ECB will stem the crisis. He hinted at the August meeting that the ECB would buy short-dated government bonds, and although that theoretically violates the mandate that the ECB not finance governments, the argument that's being used (and which is even accepted by some Germans) is that it's not state financing, it's just ensuring the transmission of monetary policy, which has gotten hopelessly wrecked by surging peripheral yields.
So now you have Draghi specifically talking bout the number of years in the program. The details seem to be coming together. What we still don't know is how Draghi will buy peripheral bonds, and whether the ECB plans some kind of cap on rates or spreads.

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