After spending four months on the sidelines, the ECB made headlines Thursday by returning to the open market to buy bonds. And there are reports that the ECB was back at it again on Friday. The goals of such a move appear to have been (a) to send a message to the markets that the ECB will support the peripheral countries and (b) don’t fight the Fed (or in this case, the ECB).
However, there was a fair amount of criticism from around the globe as the ECB’s efforts appear to have failed at both tasks. First and foremost, Trichet & Co. took heat for buying the bonds of Ireland and Portugal, which have already been assured of EU/ECB/IMF assistance in their funding efforts while ignoring the newest problems in Italy and Span.
Bloomberg reports that in an emailed note chief economist at Holger Schmieding, Joh. Berenberg Gossler & Co. in London wrote, “Would the ECB please get serious?”
Even Germany got into the mix calling for a “reinforcement of the European Financial Stability Facility” (EFSF – or EU Bailout Fund), which currently stands at €440 billion. It should be noted that the German central bank opposed the ECB’s move to buy Irish and Portuguese bonds on Thursday.
“To be effective, the EFSF needs to be credible and respected by the markets,” European Union Economic and Monetary Commissioner Olli Rehn said on BBC Radio 4’s Today program.
In a press conference to discuss the crisis situation in the EU, Rehn told reporters Friday that the EU is doing what is necessary to implement the recent EU agreement as fully and as rapidly as possible.
Rehn also said the EU Commission fully trusts that the ECB will continue to do what is needed to preserve financial stability in the euro area and restore an appropriate monetary policy transmission channel. Rehn added that we must look ahead to further reforms to strengthen even more the governance of the euro area. And finally Rehn warned that the EU's "political will" to defend the Euro should not be understimated. (A warning to traders perhaps?)
Finally, in a comment reminiscent of Italy’s PM Berlusconi’s, Rehn said that the heightened concerns surrounding Greece are not warranted and that the market unrest witnessed in the last few days over Italy and Spain are not justified on the grounds of economic fundamentals.
Thus, for the second time this week, a European official has announced to the world that the markets are “wrong.” Hmmm….
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