The ECB’s problems as we have discussed here often is that it hasn’t a pan-European debt security upon which it can lean to effect monetary policy unlike the Fed, or the Bank of Japan, or the Bank of England, or the Bank of Canada, or the Reserve Banks of Australia and New Zealand or the Central Bank of Russia or the People’s Bank of China.
These other banks have securities they can buy and/or sell, allowing the central banks in question to ramp up or diminish the sums of money in circulation at a moment’s notice. The ECB has to choose from a supply of national debt issues, all of which have different ratings, ranging from near junk to the highest possible quality.
So therein is Mr. Draghi’s problem. He would indeed like to unleash the hounds of monetary policy, but he’s no real hounds to unleash. Instead, he has a pile of small cats and little puppies, with one or two larger dogs from amongst which to choose. As we have said many, many times before and as we are saying here again this morning, we do not covet Mr. Draghi’s job, nor should anyone else. He has promised to do “Whatever is necessary” to keep the EUR intact and to bring monetary policy to heel, but the harsh fact of the matter is that the monetary and political unions were done badly from the outset and he and Europe are suffering now as a result.