Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Back in late October we posted a story outlining who this Mario Draghi character was (p.s. another Goldman alum) [Oct 30, 2011: Who is Mario Draghi?] Many expected him to try to act “German like” to showcase he was not just another easy money central banker, and to appease those upset that Axl Weber had been ‘pushed out’ from the role as successor to Trichet. Instead, he has gone down the Bernanke/Yellen pathway – not only cutting interest rates but embarking on a series of non traditional monetary operations, the most obvious of which is “LTRO” [Dec 20, 2011: LTRO – A New Acronym to Learn, and Important to Watch] In retrospect, just about everyone underestimated the power of this program as a parallel (not identical) to American / British/ Japanese quantitative easing.
Speaking of which, the Bank of England announced (to no one’s surprise) a new round of QE this morning! 
While we have become numb to the figures, they have become staggering relative to the size of their economy – much as it has in the U.S.
- As expected, the nine-member Monetary Policy Committee said the bank would buy an additional 50 billion pounds ($79.2 billion) of assets, mostly British government bonds, bringing the total stock of purchases by the bank to £325 billion, or more than 20% of Britain’s annual gross domestic product.
This morning the ECB held rates steady but considering the impact they have had on markets with LTRO I, and with a new round coming in a few weeks (some expect close to double the size of LTRO I!) obviously Draghi has unleashed the bazooka. This has been the type of can kicking even a NFL punter would be proud of.
Bloomberg takes a closer look at Draghi’s first 100 days:
- In his first 100 days as European Central Bank President, Mario Draghi has taken unprecedented action to tackle the sovereign debt crisis. Greece may push him even further into unknown territory.
- Draghi will today face questions on the ECB’s possible role in helping Greece reduce its debt as the threat of a disorderly default mounts. While the ECB has remained silent on its intentions, options canvassed range from selling its Greek bond holdings at the discount price it paid for them to taking a loss on the Greek assets held in investment portfolios, two euro-area officials said late last week on condition of anonymity. The ECB has purchased 219 billion euros of debt-strapped nations’ bonds since May 2010. Between 36 billion euros and 55 billion euros are invested in Greek sovereign debt.
- The ECB is considering selling those bonds to the European Financial Stability Facility at the knock-down price it paid for them, forgoing any profit, two euro-area officials said late last week. The EFSF could then pass that saving on to Greece or even take a loss on the bonds, helping to alleviate the nation’s debt load without compromising the ECB’s independence. There are still hurdles to that option, the officials said.
- The ECB has been instrumental in easing the turmoil since Draghi took the reins on Nov. 1, offering banks unlimited three-year loans and reversing the two rate hikes implemented by his predecessor, Jean-Claude Trichet.
- “When Mario Draghi looks back this week at his first 100 days as ECB president, he can be satisfied,” said Carsten Brzeski, senior economist at ING Group in Brussels. “But pressure on the ECB to join the burden sharing on Greece has increased. Everything will be done to avoid a disorderly default, at least in the short term.”
- So far, Draghi hasn’t signaled any ECB involvement in a Greek restructuring. Instead, the ECB has focused on warding off a looming credit crunch and encouraging lenders to re-enter sovereign debt markets. On Dec. 21, it allotted a record 489 billion euros in three-year loans to banks, the first of two such operations.
- In the run-up to the second offering on Feb. 28, the central bank is finalizing a broadening of the pool of collateral banks can use to obtain the cash.
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