ECB Takes a First Step to Admitting Its Mistake
(Bloomberg Opinion) -- The European Central Bank is beginning the process of admitting it made a policy mistake. It looks like we get one for each governor.
Officials rightly acted swiftly to add more stimulus to the worsening euro zone economy on Thursday. Pushing out rate guidance and restarting TLTROs were all welcome moves now that the idiosyncratic risks to growth are morphing into widespread damage.
Some of the market reaction was logical: The euro weakened, and bond yields fell. Some was worrying: The decline in the benchmark Euro Stoxx 50 index showed investors did not take much solace from the extra accommodation.
That this is all happening barely two months after the Governing Council voted to end new bond purchases through its quantitative easing program suggests something is not working in the Eurotower.
One particular worry is the structure of the third version of the ECB’s key bank funding program. The cost of funding arranged through the current plan (TLTRO II) will jump for some banks from June, yet the new round won’t be put in place until September. It’s not clear why Draghi is allowing this gap, which has the potential to create a mini credit crunch over the summer.
Officials will, most likely, need to do more to get the region’s economies back on track.
Maybe the motto of the ECB should be: Never Be Tightening.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.
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