ECB Protester Was Right — European Central Bank Is a ‘Dictatorship’

NEW YORK (Real Money) -- Well, this was one of the most exciting European Central Bank news conferences ever, both for what happened there and for what didn't happen.

What happened was that a protester jumped on ECB President Mario Draghi's desk, released a confetti shower, and shouted "end ECB dictatorship." She was wearing a black T-shirt with the word "dictatorship" misspelled (deliberately or not, we don't yet know) as "dicktatorship." Twitter users claimed that feminist group Femen, known for naked protests against Russian President Vladimir Putin, organized the attack.  

What happened next is even more spectacular in a way, and serves as proof of why the ECB "dictatorship" is unlikely to end: nothing. That's right, nothing happened. After a brief pause as the protester was carried away by the security guards, the news conference resumed. Draghi read his introductory notes and then proceeded to answer questions from journalists -- no question was asked about the protester, except one toward the end, when a journalist asked Draghi how come he remained so calm.

This speaks volumes about the ECB's way of dealing with the chaos that is still reigning in the eurozone and, paradoxically, may serve to reinforce its authority. The trouble with Europe has always been that it was constantly torn apart by opposing interests. Amid the Germans arguing with the French, the Dutch badmouthing the poorer states in the East, not to mention the Greeks fighting against almost everybody else, they somehow had to find a way to work together, for the good of the currency union.

The only way they could do that was by outsourcing the unpleasant decisions and by finding an outlet for public anger -- and this, it seems, is increasingly the role that the ECB is playing. In February, when the ECB inaugurated its new headquarters in Frankfurt, thousands of anti-capitalism protesters clashed with police outside the building; more than 350 demonstrators were detained.

Then, like now, the ECB went about its business unperturbed. During today's news conference, Draghi made some things clear for the markets -- sending European bonds to record highs and stocks near records.

The first, and most important, was his reassurance that the ECB's bond-buying program is here to stay. Over the past few weeks speculation that the central bank would taper early had begun to spread, fueled also by fears that there will not be enough sovereign bonds for the ECB to buy.

Any talk about tapering is premature, was Draghi's answer. "I am quite surprised, frankly, by the attention that a possible early exit of the program receives, when we've been into this program for a month. It's like asking yourself after one kilometer: are you going to finish this marathon?" He repeated several times during the news conference that bond purchases are intended to last until September 2016.

More interestingly, asked what happens if inflation gives signs that it may reach the ECB's 2% target before that date, Draghi signaled that the central bank will not be too rigid in its measuring of inflation, nor will it rely on a brief period of time to conclude that it has reached its target.

"We're not going to be judging or assessing on the basis of point-in-time observations," Draghi said, adding: "We are not bound by one specific indicator; we'll be using a variety of indicators about inflation expectations."

In other words, hitting the 2% for a short period of time before September 2016 is no guarantee that bond purchases will end -- and this is mainly why stocks and bonds rallied so sharply after the news conference.

Another area on which the ECB sounded much more positive than had been expected was Greece. Draghi confirmed that the emergency liquidity assistance (ELA) that Greek banks can draw from the Greek central bank had been raised. Reuters and Bloomberg reported on Thursday that the cap had been increased by 800 million euros ($848.7 million), taking the ELA ceiling to 74 billion euros.

Stressing that the ECB's exposure to Greece's banks is now to the tune of 110 billion euros, "the highest in the euro area," Draghi also said there is no cut-off date for the extension of the ELA, of which Greek banks can continue to benefit as long as they remain solvent. As for finding a solution to the rest of Greece's problems, "it's in the hands of the Greek government," in Draghi's words.

Finally, he calmed fears on another burning issue as well: the fear that scarcity of sovereign bonds to buy will soon either make the asset purchases program unworkable or will force the central bank to lower its deposit rate below minus 0.2%, as yields on some debt fall below that threshold.

There are no signs of scarcity, Draghi said, and banks will soon realize that the cash they get in exchange for the government bonds they hold is as good, from a regulatory point of view, as the bonds themselves.

Therefore, for eurozone QE, it's business as usual at least until September 2016. It's all that investors wanted to hear. The ECB's "dictatorship" over the markets seems to be intact.

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