6th September 2012
Nonetheless, The Guardian newspaper has Ben Jones, a European analyst from the Economist Intelligence Unit, saying that the central bank could buy Spain and Italy a year's grace today, with the right kind of programme. "The ECB's new bond buying programme could prove to be the most powerful weapon deployed so far in the battle to stabilise the euro zone. On the assumption that terms of access can be agreed-and broadly respected-the ECB's programme should ensure that banks can continue to fund struggling governments in Spain and Italy during the next year or so."
Vincent Cignarella, a currency strategist/columnist for DJ FX Trader, however, reckons Draghi's anticipated plan to buy bonds is not the "bazooka" that people make it out to be. "It's more of a shotgun blast–it will pack a punch but it will lack precision and won't finish the job. And once the ECB has fired that gun, the euro zone will be left defenseless."
"Sure," he continues, "a strong euro-positive move will likely be the initial reaction to the bond-buying news….. But after the initial pop….. Those who are long will have had time to take profits and those who want to go short will have their ideal moment to strike."
"The truth is that the bond-buying plan as it is conceived won't be the answer to Europe's deep, structural problems."
Moreover, Marshall Auerback, a hedge fund manager and portfolio strategist, warns that the problem with renewed bond buying is that will be tied to the conditionality of yet more fiscal austerity, "and Greece is being held up as the poster boy of what happens when you don't comply with the conditions laid out by the ECB, or the Troika."
In addressing the solvency issue, Auerback argues, the ECB's conditionality will ironically make the very "problem" of fiscal extravagance and higher budget deficits much worse, as aggregate demand gets suppressed by yet more austerity.
And columnist Ron Fraser reminds us not forget that in all this there is one powerful influence that will place limits on Draghi's initiatives-the combined political and economic clout of Europe's most dominant nation – Germany. "Theoretically, Draghi has limitless power to print money to pour into bond purchases. But Germany's conservative Bundesbank opposes the purchase plan. It says governments could become addicted to central bank support-and slack off on cutting their deficits."
But in the end, Zero Hedge claims, one thing is for certain: if the ECB does what it's predicted to do, expect all the other central banks to do more of the same. "In fact, it is almost assured that by the end of 2013 half of the developed world's GDP will be held by its central banks."
Previously on The Financialist: