ECB: A Bipolar Bank

ECB President Mario Draghi vehemently defended the actions of the institution he presides at the final meeting last Thursday.

And more specifically, the unconventional monetary policy, known by its acronym OMT, which are committed to purchase bonds of troubled countries if they previously request it.

Following a meeting in which they did not change interest rates and decided not to take any further action, President Draghi stated that in the absence of deflationary risks in the Eurozone (and the stability of peripheral debt markets), they decided to stay as they were.


Bond Purchases 'Only If Requested'

Mario Draghi defends bond purchases, although it has not been necessary yet, and it makes sense given the direct opposition exerted by the German representatives at the central bank and some of the politicians of that country. In fact, there is a demand in the German Constitutional Court, pending resolution, presented by German politicians, as they consider that this practice is illegal and outside the remit of the ECB.

But over-optimism, which is closer to empty triumphalism and, again, the feeling that conveys market inaction, or perhaps impotence, can be very harmful.


Risk Premiums Rising Again

In fact, after his statements, the peripheral European bonds fell and thus the risk premium was rising again.

The impression given in his appearance was to be more concerned about the approval of Germany, as he even expressed the hope that the German Constitutional Court would not oppose against the measure adopted by the central bank in Europe.

Fragmentation of the Market

If we add the setback in the talks about the banking union, another point that Mario Draghi stressed, and thus the impossibility of reaching monetary policies properly transmitted to the market, it is causing its fragmentation by uncertainty on the health of some financial institutions. And the result is pessimism.

Although estimates are made to improve the economy later this year, financial markets need a stronger action to restore confidence.

It is really worrying that bonds are being selled again, and risk premiums are rising, especially now that Japan, the country that has been active in this market and has given support to the debt, is floundering amid doubts about the effectiveness stimulus policies of the new executive.

Concerns Out

The European Central Bank needs to be more confident and more assertive in its statements. An independent central bank can not be worried about if its policy is approved in a country or a court.

The market expected a reinforcement in rate cuts that occurred in the previous meeting, and an explanation the promised measures to facilitate credit to SMEs.

What we don't need is indecision and timidity. The market is giving clear signals of what is needed to regain confidence, and if the ECB don't act, we could return again to unnecessary tensions.