The European Central Bank has one of its two offsite policy meetings of the year, in Naples. After a glut of measures last time it’s inconceivable that further action will be taken now but there is plenty to ponder.
A first tranche of cheap four-year loans has been offered to banks in the hope they will lend it on but the take-up was poor. The ECB is playing up the prospects of a second round in December after bank stress tests are out of the way. But having pledged to add the best part of 1 trillion euros to its balance sheet to rev up the euro zone economy, there is a lot of ground to cover.
Draghi will flesh out the ECB’s parallel plan to buy bundled-up loans – asset-backed securities – which has already been viewed with disquiet by Bundesbank chief Jens Weidmann. That may be heightened by the realisation that if the ECB is to open the offer to banks across the euro zone, it may have to take in some rather dicey looking collateral from the likes of Greece and Cyprus.
A Reuters poll on Monday showed money market traders on average expect the ECB to buy a total of 200 billion euros of ABS and covered bonds over a year. Draghi has appealed to governments to support the plan by guaranteeing some riskier ABS tranches, but both France and Germany oppose that.
The ECB faces big political and philosophical hurdles to launching full quantitative easing. And there is now another reason to ponder whether it will take the ultimate step, which many in the markets assume is just a matter of time.