Tag Archives: Mario Draghi

LOTS OF FROTH, by François Leclerc

Guest post. Translated from the French by Tim Gupwell

A brand new development in the history of the ECB has occurred: leaks yesterday revealed the broad outlines of its new sovereign debt securities’ purchase programme. One cannot help thinking that it was necessary to prepare the ground in advance, with the ECB decisions falling well short of some of the mounting speculation.

According to Mario Draghi, there will be no limit to the amount of bond purchases on the secondary market – but the scope of the announcement needs to be put into perspective. They will in fact be decided on a case by case basis, and not as soon as a specific threshold has been crossed: based on interest rates or spread for example. It has also been confirmed that it will concern securities with a maturity of between one and three years, something already anticipated recently by the market, judging by the result of the issues which have occurred.

Continue reading LOTS OF FROTH, by François Leclerc


Translated from the French by Tim Gupwel.

A short while ago, I was taking a siesta, sleeping with a sound conscience, when I woke up with a start, my heart beating wildly, my forehead soaked with sweat and prey to a strong emotion: what if we had completely misunderstood the words of Mario Draghi, President of the European Central Bank, the day before yesterday? What if he had actually said something completely different to what we had heard him say?

This is far from impossible: during the period from 1997 – 2006, I conscientiously read every single speech made by Alan Greenspan, who was head of the Fed at the time, and I very often heard him say things of which subsequently not a trace was to be found in the Press, which believed nonetheless that it was conscientiously reporting his remarks. Some examples of this are to be found in my book La crise du capitalisme américain (2007) *

Everyone thought they heard Mario Draghi say on Thursday that the ECB would purchase as much Spanish and Italian debt as necessary to ensure that the lending rates charged by the capital markets returned to a reasonable level.

This is what I believed I had heard myself, and I  droned on in my video yesterday, in unison with the International Press, that Draghi would keep the European money printing press running for as long as necessary.

But this makes no sense, if one bears in mind that Jens Weidmann, the head of the Bundesbank, would never accept such a monetary heresy.

Of course, Weidmann’s predecessor at the head of this venerable institution, Axel Weber had resigned in April 2011 rather than continue suffering from affronts of this kind, and Jürgen Stark, the Chief Economist of the Bundesbank, had also resigned for the same reason, and this in September of last year.

Hence without doubt the reason why I suddenly woke up in a cold sweat: Draghi was not talking about printing money, but about convertibility. He uttered the words, “these premiums are, as I have already said, to do with liquidity issues, but also, and increasingly so, to do with convertibility and with convertibility risk”!

To do with convertibility! Due to the fact that the extraordinary rates charged by the capital markets for Spain and Italy – right up until the moment he pronounced his reassuring words on Thursday – were not due to a risk premium for non-repayment but to a convertibility premium: for the loss that lenders would suffer in the event of a return to the peseta and to the lira!

To forestall this, all Draghi needed to do was to declare ‘we will do everything in our power to save the Euro’, and to convince everyone of what he was affirming by the firmness of his voice. To hell with ECB acquisitions of Italian and Spanish debt! To hell with Jens Weidmann and his monetary orthodoxy! To hell with the German Constitutional Court in Karlsruhe, reflecting on the beaches until September on whether the ESM is constitutional or not!

Nobody had heard what Mario Draghi had actually said: “Trust me: we will never abandon the Euro – and what I am saying here should be enough to make sure the convertibility premium falls back to zero, because there is no way there will be a return to the peseta and the lira, you have my word for it as President of the ECB”

“We will never abandon the Euro!” “We”? Let’s hope these “We”s really know what they are doing! Otherwise the Spanish debt will rapidly shot back over the 7% mark, as soon as everybody realizes that unfortunately these “We”s really didn’t know what they are doing…

* ‘The Crisis of American Capitalism’


Guest post. Translated from the French by Tim Gupwell

François Hollande has confirmed that the Government is going to propose for adoption an organic law (which a simple law cannot undo) in order to have the balanced budget rule adopted, on the advantageous pretext that it is provisional. There have been many occasions in recent French history when special measures have been adopted for their presumed importance, without ever leaving good memories behind.

At the same time, the debate in Europe continues to move on, focusing once again on the reduction of the banks’ debts. Thanks to the Wall Street Journal, we have learnt that during their latest meeting, the ECB advised the European Finance Ministers to force the senior debt-holders to participate in the bail-out of the Spanish banks. A 180° U-turn which was not actually followed, since the draft of the memorandum which is supposed to be adopted during the next Eurogroup meeting on the 20th July makes no mention of it.

According to the newspaper’s sources, the ministers did not wish to follow Mario Draghi’s proposals at the meeting, as they were afraid of how the markets would react. It was also out of fear that the Irish government would demand equal treatment, since to save the European banks – in particular the British ones – the Irish Government had to borrow money to pay off the senior creditors of their country’s banks. Nor would the Greek and Portuguese Governments have failed to jump on the bandwagon.



Guest post. Translated from the French by Tim Gupwell

We recently touched on the quartet engaged in drawing up a composite motion, in order to faire avancer le schmilblick (= to move the schmilblick forward, or in other words to make a limited contribution to solve a complex problem). Before describing their efforts it may be helpful to recall the definition (*) given to it by its creator, Pierre Dac.

Mario Draghi, Jean-Claude Juncker, Herman Van Rompuy and José Manuel Barroso (in no particular order) may not be aware of the schmilblick. Nonetheless, this has not stopped them from searching for it in the form of a bold compromise formula destined for the next summit, with the aim of exchanging debt pooling measures in return for the reinforcement of the budgetary union held so dear by the German Government. Because this is how the bidding is likely to pan out. But where is the happy medium? Sensibly, this question will be put back to the end of the year.

Continue reading DO YOU KNOW WHAT SCHMILBLICK IS ?, by François Leclerc


Guest post. Translated from the French by Tim Gupwell

What can you say when you are in total disagreement? You can always assert, with one voice, the need for a union! This is this perspective that the quartet composed of José Manuel Barroso, Mario Draghi, Jean-Claude Juncker and Herman Van Rompuy (in alphabetical order) continues to work on.

A new magic word has been discovered and is going to be proclaimed with all its variations, to push for the implementation of four unions: banking, fiscal, economic and political. With the fiscal union already in the pipeline, the next stage which urgently needs to be reached is that of the banking union. According to a leaked document, it is supposed to be ready in a year – reverting back to a new season of this tactic of putting out feelers to see how people react.

Continue reading AFTER THE WORDS, THE MAGIC FORMULA…, by François Leclerc

BACK FROM LOS CABOS, by François Leclerc

Guest post. Translated from the French by Tim Gupwell

Given that the G20 has confined itself to mere generalities and that the European Summit on the 28th and 29th June is dangerously close, what can be expected of the meeting in Rome on the 22nd June between Angela Merkel, Mario Monti, Mariano Rajoy and François Hollande, intended to serve as preparation for it?

Two projects are being examined in parallel by the European institutions, which are being assembled together and presented as if they were one of Great Wonders of the World. Firstly, by issuing Eurobonds with a short maturity- and thus with limited risk – and secondly by the creation of a fund intended to bring together and finance over a period of 20 to 25 years the stock of debt which exceeds the threshold of 60% each country’s GDP – these countries will have to demonstrate their credentials beforehand with regard to their budgetary commitments. Thanks to these virtuous arrangements, we will all be saved and the chaotic debt-reduction strategy will finally work as it should!

Intended to ease the pressure on the debt-reduction strategy, this wonderful arrangement will not, however, get Europe out of the recession which is the main cause of the investors’ lack of confidence. Due to its global dimension, this prospect was at the heart of the discussions at the G20. In order to help private sector debt-reduction, these two complementary measures will be coupled with a ‘Banking Union’ based on the doubtful premise that the banks will be able to finance their own rescue-packages without any external intervention.

Continue reading BACK FROM LOS CABOS, by François Leclerc


Guest post. Translated from the French by Tim Gupwell.

It was no longer possible to carry on. Two and a half hours of videoconference between the Eurozone’s finance ministers (joined by Christine Lagarde on behalf of the IMF) were needed to finalize the scheme, allowing the German and Spanish governments to save face. Germany made sure that aid for the Spanish banks passed via the State, thus increasing Spain’s deficit, whilst Spain attempted to explain that this was not a bail-out plan or a loss of sovereignty, with, furthermore, the assistance not being subject to any austerity measures.

Up to a hundred billion Euros are going to be lent to FROB, the government’s banking support fund, on the condition that the government takes measures to stabilize its banking system. How this will work is yet to be defined. The IMF, which is not contributing financially to the rescue, will be entrusted with the task of ensuring it all goes smoothly.

Continue reading A HUNDRED BILLION EUROS FOR SPANISH BANKS, by François Leclerc

NEVER CHANGE A WINNING TEAM !, by François Leclerc

Guest post. Translated from the French by Tim Gupwell.

The headline in the newspaper Welt am Sonntag, the Sunday edition of the German daily Die Welt, revealed “a secret plan for a new Europe” put together by Hermann Van Rompuy, Jean Claude Juncker, Mario Draghi and José Manuel Barroso, the leaders of the four main European institutions. It is destined to be presented for adoption at the end of this month during the Summit of Heads of State and Government.

Billed as a decisive reinforcement of the European construction, the plan is based on the creation of three unions – banking, fiscal and political – as well as the structural reform of labour laws and social programmes. In other words, the sort of broad gestures and supposedly coherent visions which leaders are so fond of when they set about solving the world’s problems: a plan that will also allow them to indulge in one of their favourite things, the drafting up of the latest pompous press release.

The first two components will aim to resolve the opposing aspects of the debt crisis. The banking union has a threefold aim: a regulation of the sector, a deposit guarantee fund and the raising of an emergency intervention fund. The fiscal union will take up the measures already foreseen in the budgetary austerity pact, even tightening them if possible. Finally, a programme of structural reforms will re-affirm the direction already taken, which is intended to restore the loss of Europe’s competitiveness. This will implicitly be a carbon copy of the Hartz Laws for the Reform of the Job Market adopted in Germany between the years 2003 and 2005. The reform of social budgets will be blamed on that recent and unforeseeable discovery: an ageing population…

Continue reading NEVER CHANGE A WINNING TEAM !, by François Leclerc