It’s ECB day and after Mario Draghi’s recent dramatic utterances, expectation for fresh action has grown, expectations which are likely largely to be dashed.
Draghi told the world’s central banking elite in Jackson Hole last month that market inflation expectations were falling markedly and the European Central Bank would use everything in its power to stabilize them in order to avoid a deflationary spiral. He also ripped up central banking orthodoxy by calling for more fiscal spending by governments at the same time as redoubling economic reform efforts. How to read that?
Two possibilities spring to mind. Either Draghi (who has talked with a number of EU leaders recently) thinks he can secure fresh a commitment on structural reform and can use that to go back to his ECB colleagues to argue they should cross the ultimate Rubicon and start printing money in return.
Or, he is disillusioned with the lack of reform to labour markets, pensions systems etc – which was the oft-forgotten quid pro quo for his game-changing “whatever it takes” pledge two years ago – and thinks the ECB has reached the end of the road in terms of what it can do and is telling the bloc’s governments it is now down to them to foster an economic revival.
Either way, his monthly press conference will be minutely scrutinized to see if he stands by his Jackson Hole remarks – which prompted Angela Merkel and Wolfgang Schaueble to ask for clarification – and whether he gives any sort of hint that QE is coming.