For once, the ECB will not behave as a government last resort lender, channelling instead money to the real economy. Public bonds will benefit only indirectly from this easing bonanza. After a long period in the doledrums, active monetary policy has performed a remarkable comeback.
Draghi at last asserts his authority, no longer caving in to Bundesbank pressure. Ring-fencing the money glut from leaking into public deficit financing stands as his only concession to orthodoxy. A token price being paid for securing swift approval for the package. The ABS buying programme will also have to wait for full implementation. Yet, all in all, the monetary stimulus seems impressive.
Time will tell us the extent to which this money flood will feed into full-fledged recovery. The ECB has laid the ground for it. Yet, for all the boost provided to confidence and softer credit conditions, growth and employment might take longer than expected to pick up vigourously. The short-term benefits will only become visible in the financial markets. Banks will be able to cash unlimited resources for facing strains in the forthcoming balance sheet health check.
Furthermore, the steep narrowing of the interbank lending channel will foster swifter fund exchange. The ECB is all too conscious that financial crises always stem from sudden illiquid conditions. The absence of a credible EU-wide backstop, underpins the need to enforce any precautionary measure at hand. Nothing serves better this purpose than pouring significant amounts of money into the system.
The set of measures will undoubtedly help to invigorate the economy. The targeted long-term facility is tailored to entice credit allocation, thus curbing its downwards current trend. The penalty on idle banking cash is also likely to produce softer lending around the clock. The promise to keep a largely acommodative monetary stance in coming years will also propel a renewed appetite for indebtedness, thus contributing to forster credit demand.
Other decisions will further anchor this golden rush. Providing unlimited liquidity at low fixed interest rates, slashing the current cash injection skimming policy, shows to what extent the ECB is firmly committed for a radical switch in monetary conditions.
Few observers bet a few months ago it should embark itself in such a far reaching U-turn. The plight experienced by traditional parties in the recent European election, has paved the way for a free ride in financial easing. It has lifted the veto up to now Berlin imposed on money loosening.
Even if political considerations lay behind the ECB enlarged room of manoeuvre, nothing will rein in this taste of independence in future. Draghi has achieved his goal of introducing growth as a key monetary objective while preserving the ECB mandate as it stands. A sweeping change shaping a new economic policy in Europe.