пятница, 5 апреля 2013 г.

05 April 2013: Draghi: Cyprus not a template


Cyprus is not a template for other possible banking crisis inside the Euro zone, the president of the European Central Bank, ECB, Mario Draghi stated after the ECB board meeting yesterday. Draghi thereby criticized his own decision where Cyprus banks with the blessing of the ECB, was given the right to confiscate funds on private banking accounts below the guaranteed Euro 100 000. Draghi admitted that the proposal was not very “smart”, and stressed that potential future crises would be handled differently without risk for private account holders and companies. This initial wrong decision was quickly corrected, Draghi added.

It took, however, more than a week before the ECB sponsored proposal was rejected by the Cypriot parliament and a new bailout plan was presented. In the meantime it created confusion and havoc in the global financial markets. The new proposal exempted accounts with a balance below Euro 100 000 and from confiscation and left to foreign account holders, mainly Russians and Ukrainians, to bear the bulk of the bailout burden.

The Euro fall as low as 1.2745 on Draghi’s remarks. Euro/USD later recovered strongly to 1.2933. The way ECB and the EU have handled the Cyprus crisis, has, however, put grave question marks as to Draghi and EU-politicians ability to handle the euro zone problems. The crisis ridden Southern European periphery is dragging further into recession, and the only solution the troika of EU, ECB and the International Monetary Fund, IMF, has been able to come up with is a further vicious circle of reduced economic growth, increased taxes and growing unemployment.

Draghi had suggested yesterday that ECB could slash the interest rate, already at a record low level, even further. In a situation where the currency rates are highly volatile and often jump more than one percent a day, a reduction of the interest rate with 0,25% is not the most convincing argument to get the euro zone back on track. Along with low interest rates quantitative easing has been central banks preferred tool. ECB has heavily been buying national bonds in Italy and Spain to avoid spiraling bond rates.

Bank of Japan which also met yesterday, announced aggressive measures to ease monetary policy. USD/JPY plummeted from 93 to 95,67. BOJ will in the next two years double its holding of bonds and shares in line with the monetary easing policies of the US Federal Reserve (FED). BOJ has also set an inflation target of 2% to stimulate economic growth. BOJ’s plan implies to buy bonds for an equivalent of USD 73 Billion monthly. Fed is in comparison buying for USD 85 billion a month. Wall Street got a lift from BOJ’s surprisingly dramatic stimulus plan. This came along with supportive comments from ECB and FED, suggesting that central bank policies will keep underpinning measures to the benefit of stocks. 

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