Earlier this week, the president of the European Central Bank, Jean-Claude Trichet, said that we shouldn’t underestimate the determination of the eurozone’s leaders to hold everything together. On the face of it, he’s happy to test that determination to its limits.
Investors had assumed that Monsieur Trichet’s comments meant that he’d be ready with a great big bail-out. Instead, he basically said that although the ECB won’t be withdrawing ‘temporary’ support for troubled banks or countries any time soon, it’s still up to countries to sort out their finances in the longer run. There is a “clear need” for governments to “strengthen confidence in public finances.”
As Capital Economics put it (and as we suggested in today’s Money Morning), this was “the bare minimum that the ECB could have done in the light of the continued turmoil in peripheral bond markets and the more general worries over the sovereign debt crisis.”
Despite this, the euro slipped back, but it did recover some of its poise later in the day. Meanwhile, peripheral government bond yields edged back in. So did the market buy the ECB’s apparently relaxed stance?
Well, maybe Monsieur Trichet is a little less sanguine about the crisis than he admits. As Izabella Kaminska flags up on FT Alphaville, there are suggestions that the ECB piled in to buy periphery bonds even as Jean-Claude was talking down the crisis.
Alphaville quotes “a trusty source”: “As Trichet started to speak, his ECB troops stepped into the market to buy as many peripheral bonds as they could, particularly Portugal and Ireland.” Always good to see Europe’s leaders tackling a crisis with their usual levels of transparency.
So will Europe get quantitative easing by the back door? We wouldn’t put it past the ECB, but the question remains of how to get such a deal past Germany. It may take another eurozone panic – which could easily rear up in the very near future – to force the issue.