European Central Bank President Mario Draghi today not only soothed markets with dulcet-toned plans to keep the eurozone alive but actually help boost stock markets worldwide. But for canny treasurers, the real person to keep an eye on is skeptical Bundesbank President Jens Weidmann who insists that the ECB’s sterilized bond buying plan was actually “tantamount to financing governments by printing banknotes.”
Treasurers and companies have since last fall drawn up contingency plans for dissolution of the eurozone or an exit by one country (Greece) or another. And they continue to look for and mitigate any issues that they can think of. In light of today’s pronouncements, they should keep looking.
That’s because the ECB’s current solutions only allow troubled eurozone countries to delay the necessary reforms they need (and in a broader sense, the reforms the eurozone needs) to keep the eurozone alive. “If the adopted bond-purchasing program leads to member states postponing the necessary reforms, this will further undermine confidence in the political leaders’ crisis-resolution capability,” Mr. Weidmann said in a statement released by the German central bank.
Ultimately the plan risks monetary policy being subjugated to fiscal policy, the bank said. The plans “are not technical but political in nature and should be authorized by democratic institutions,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman, in a note to clients. “Those democratic institutions, namely elected governments, agreed to certain modes of behavior and rights and obligations. The ECB has abridged those agreements. To whom is the ECB accountable to then?”
And the outcome of the ECB’s will be the same, noted blog site Zerohedge. That is, “abject failure to contain the crisis, which will not be resolved until and if Europe succeeds in creating a united, Federal state, with one bond issuance authority. That will never happen: after all, 17 European states will never hand over their sovereignty to a third party, especially one which is backstopped by German cash.”
With that in mind, treasurers are better off sticking following who has the cash: Germany, Jens Weidmann and the Bundesbank.