FRANKFURT, Germany – Europe’s economic outlook is finally beginning to brighten a little. But don’t expect European Central Bank head Mario Draghi to sound all that excited when he takes the stage Wednesday for his next news conference.
Draghi will sound a little cautious in order to discourage any thought that the bank might make an early exit from its 1.1 trillion euro ($1.2 trillion) monetary stimulus program slated to run through September 2016.
The monthly bond purchases are aimed at raising inflation from a worrisome low of minus 0.1 percent annually. Weak inflation is a sign of the economic malaise still plaguing the 19 countries that use the euro as their currency.
Here are five things to look for in Draghi’s comments after the meeting of the ECB’s 25-member governing council.
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NO TAPER
The bank is off to a running start with its bond-buying program, which pumps newly printed money into the financial system. It achieved its target of 60 billion euros in the first month since the effort launched March 9.
And so far, so good. Economic indicators are looking up. A quarterly ECB survey showed banks are becoming less strict with credit to companies. The euro’s exchange rate is down, helping exporters. A key European stock index hit a record high this week.
A lot of that is because markets anticipated the ECB stimulus. So the last thing Draghi wants is for people to think the recovery will be so strong the ECB can make an early exit.
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GREECE
The ECB has been keeping Greece’s banks on life support while the country’s left-wing government tries to satisfy conditions for more bailout credit from the other eurozone governments. Without more money, Greece could default and wind up leaving the euro. The ECB has gradually increased the amount Greek banks are permitted to borrow from the Greek central bank’s emergency liquidity line.
Draghi’s remarks will be closely scrutinized for how close the ECB might be to turning off the tap. Still, most think the ECB doesn’t want to be the one to pull the plug on Greece’s financial system, to say the least.
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RUNNING OUT
Draghi may address analyst comments that he risks running out of bonds to buy.
Analyst Marie Diron at Moody’s Investors Service said in a report Tuesday that the ECB could fall afoul of its refusal to buy bonds with yields lower than minus 0.2 percent. Some 28 percent of German bonds with maturities between two and 30 years yield less than 0.2 percent, compared with 5 percent when the ECB announced the stimulus program in January.
Unless the stimulus is successful in raising growth and inflation expectations — so that long-term bond rates rise — the ECB might have to tweak its stimulus rules. It could raise the 25 percent limit on its holdings of any particular issue.
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REFORMS
Eurozone governments are likely to hear Draghi again urge them to get busy with long-term reforms to increase growth. He has warned repeatedly against relying on easy central bank money alone to produce a recovery. Those reforms could include looser rules on hiring and firing workers, and trimming the burdensome paperwork and permissions needed to start a new business.
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CHILL
After months of high anticipation that led to the ECB announcing its bond-buying program on the Jan. 22 and March 25 meetings, this one could be the first low-key governing council gathering in months. The stimulus is running, and the benchmark rate of 0.05 for lending to banks is as low as the ECB says it can go.
“For the first time in a long while, the ECB can sit back and relax,” wrote analyst Carsten Brzeski at ING.
Draghi “only needs to be careful not to overdo any self-congratulation, to avoid any premature tapering discussion.”
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