This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

ECB Actions: More Than Meets the Eye

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- In today's press conference, the new European Central Bank (ECB) president, Mario Draghi made it clear that he understands what the ECB can do to affect monetary policy, he understands what political leaders must do to deliver fiscal stability, and he understands that Europe's growth prospects have been lowered for 2012 and the ECB must take on non-standard measures to limit the damage.

In addition to lowering the key ECB lending rates by a quarter point, Draghi announced several non-standard measures to facilitate lending and liquidity. This includes extending the lending duration of longer term refinance options (LTRO) to 36 months. Twenty-four months had been anticipated. Among other things, in the first quarter of 2012, $230 billion of bonds are coming to maturity and this measure will facilitate refinancing.

Also announced were lowering the eligibility of what constitutes loan collateral and reducing reserve requirements from 2% to 1%.

When asked if the ECB would be engaging in large-scale government bond purchases, his answer was a simple no. And it will remain no. By treaty the ECB is prohibited from financing government operations.

It was, however, made clear that the ECB can act as an agent for the European Financial Stability Facility (EFSF) in any bond purchasing operations. So while bond repurchases are necessarily off the table for the ECB, they are not off the table as a means to deliver eurozone stability.

Similar to Bernanke at former press conferences, Draghi made it clear that the ECB's monetary tools can only do so much. The other side of the equation is what can and must be done with fiscal policy by the EU member nations. For Europe, this may actually be a simpler process than in gridlocked Washington. A fiscal compact by EU member nations is currently under negotiation. Included are new obligatory policies on debt and deficit levels, mechanisms to stabilize the eurozone bailout fund and structural reforms that will deliver labor market flexibility and permit EU members to increase their export competitiveness.

On the breakup of the EU, Draghi said, "breakup is quite far fetched." With the new non-standard measures that are designed to keep credit flowing and presumably an inside track on the negotiations for the new fiscal compact, there is some reason to be cautiously optimistic that Europe does finally understand the nature of their financial crisis.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,810.06 +91.06 0.51%
S&P 500 2,063.50 +10.75 0.52%
NASDAQ 4,712.97 +11.1030 0.24%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs