Eurozone’s economic reality tests cautious European Central Bank

The European Central Bank’s decision to accept bonds rated with a simple A (in exchange of credit) instead of demanding triple-A’s, as it has previously been the rule, would prove that the president of the Eurozone’s entity, Mario Draghi, is really willing to take the necessary steps to overcome the crisis.

The news is significant in itself, and it is so for more than one reason. First, it was unusually adopted in the second meeting of the month, underlying a sense of urgency. Secondly, it came with the addition that the ECB is studying how to improve financing conditions for small and medium companies in the Eurozone.

The Governing Council of the ECB has made clear it seeks to strengthen risk management systems of all banks. It will conduct a biennial review of the rules over collateral and the discounts it applies to banks according to the monetary programme for the Eurosystem.

In the industry, it is recalled that the Germans have been the ones who have most insisted in recent years on demanding the introduction of further measures to the new requirements of similar risk control across Europe. These new control requirements will be eventually forced on to the whole system of regional banks and also the German mutual banks.

Even the habitually technical language of the ECB is clear on this point. And the provision of loans to smaller companies is, too, a clear move that acknowledges that the financial policy measures of the ECB have different impacts on different EU countries.

Still, what remains to be specified by Draghi is the question about when the ECB will finally accept asset-backed securities as collateral for SMEs to receive funding, for instance. Because, again due to the pressures of the countries most reluctant to let the European Central Bank support this collateral as security for credit, some Eurozone companies pay a higher price than others.

This is just an example of the other side of the ECB coin, that it doesn’t act as other central banks to help economic recovery. If the ECB doubts about some countries’ institutions, the central bank must say so. But analysts and market players aren’t the right judges of European monetary policies.

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