FXstreet.com (Córdoba) - After Draghi's comments last week,
prospects the ECB will resume the Securities Market Program (
), under which the ECB buys sovereign bonds in the secondary market
that are not satisfactorily reflect the its policy stance,
Regarding this subject, the BBH team explains why this policy
didn't work in the past and why giving the ESM banking license
could represent a better choice but it is premature. "Part of the
reason the SMP program did not work in the 2010 and 2011 efforts in
terms of pushing yields down is that the market understood that
they were both half-hearted and limited in scale", BBH explains.
"The EFSF has limited funds available given its commitments. What
would be a game changer is if the ESM was granted a banking license
so it could borrow theoretically unlimited amounts from the ECB".
"Yet the creditor nations, especially Germany cannot sanction this
because this represents nothing less than an open-ended financial
liability", they say. "Not only is a decision on a banking license
premature in the sense that the ESM does not exist today, other
decisions, like a cut in the deposit rate or official sector
involvement in the adjustment of Greece's program, do not have to
be addressed this week and therefore won't be".
"There is substantial risk that Draghi will be unable to fully
deliver on his promise for shock and awe", they add.