ECB meeting – Draghi’s poker face

At today’s meeting, the ECB left interest rates unchanged. At the same time, they announced an extension of the full allotment procedure for all its liquidity operations, at least until the beginning of next year. No additional measures were announced. The ECB looks determined to keep maximum pressure on Eurozone politicians.


Listening to the ECB’s macro-economic assessment was a bit like listening to whistles in the dark. It looks as if they are becoming increasingly worried but does not want to show it. The ECB still expects the Eurozone to recover “gradually”. However, today there was more emphasis on uncertainty and further weakening. Strikingly, the more cautious tone and increased uncertainty were not reflected in the latest ECB staff projections. In regards to the growth outlook, ECB staff expects the economy to contract by 0.1% in 2012 and 1% in 2013. In March, GDP growth was expected to come in at 0.1% and 1.1%. Looking at inflation, ECB staff expects headline inflation to come in at 2.4% this year and 1.6% in 2013, unchanged from the March projections. A much more cautious Draghi but unchanged staff projections seemingly shows a divergence in views between ECB staff and the Governing Council.

In regards to the future path of monetary policy, ECB president Draghi kept a very low profile. If at all, and admittedly with some good will, Draghi very gently opened the door for a future rate cut . “Heightened uncertainty, “increased” downside risks to the economic outlook and the fact that today’s decision was taken by consensus, not by unanimity will keep rate cut expectations alive. Remember that the ECB has never used code words to hint at future rate cuts, only rate hikes. However, back in October last year, former president Trichet had prepared the grounds for Draghi’s November rate cut by stating that a rate cut had been discussed.

More generally on the Eurozone crisis, Draghi just repeated last month’s inconvenient truth that there was no silver bullet for the crisis. For example, questions on the ECB’s vision on the future of the Eurozone remained basically unanswered. In fact, Draghi’s comments and body language at the press conference gave the impression that, at least as far as he was concerned, today’s press conference could have been skipped. It was the picture of a poker player who keeps his cards close to his chest.

The ECB wants to keep maximum pressure on Eurozone politicians. Draghi’s comment, that it was not the ECB’s task to fill other institutions’ lack of action, was very clear. In our view, even if Draghi today denied that there was a quid-pro-quo, it is hard to believe that the ECB would really stay on the sidelines when push comes to shove. Too much is at risk. However, at least for the time being, today’s press conference was a clear signal that ECB is tired of pulling the chestnuts out of the fire for Eurozone politicians.