Is the ECB Up to Something Big?

With the ECB’s head honchos taking a rain check on the Jackson Hole meeting this weekend, market players are speculating that the euro zone’s central bank is up to something big to solve the region’s debt crisis.

Just a few days ago the euro received a boost when the markets found out that Mario Draghi cancelled his plans to go to the Jackson Hole meeting hosted by the Fed, citing a busy work schedule as his excuse.

What could be so important that he can’t even send a proxy to the meeting? Is it because the ECB is working on something big?

In an interview with German newspaper Die Zeit yesterday, Super Mario reiterated the need to defend the euro at all costs. Draghi hinted that while the ECB will always act within its mandate to maintain price stability, it must sometimes go beyond conventional monetary policies in order to fulfill it.

To drive his point further, he also called for “exceptional measures” that would stabilize financial markets.

Draghi got more specific further into the interview as he talked of a “new architecture” that would resolve the region’s debt saga. He also mentioned increasing efforts to promote economic competitiveness, as well as the need for a centralized banking authority that would have the power to limit excessive risk-taking of the euro zone’s banks.

Does this mean that we should brace ourselves for something big during next week’s ECB policy statement? Probably. Recall that the ECB officials are currently ironing out plans to buy short-term bonds from euro zone governments that have requested for bailouts. Draghi did mention that their goal is to ease some of the burden on the debt-ridden governments, such as Spain and Italy, but only if they comply with a strict set of conditions.

However, Germany’s Bundesbank has been firmly opposed to bond purchases of any kind. In a recent interview, Bundesbank President Jens Weidman even mentioned that such wide-scale central bank financing could lead to “dependency like a drug” for the fiscally-troubled nations.

Besides, ECB Head Draghi has already shown a penchant for disappointing the markets when he failed to follow up on his promise to do whatever it takes to save the euro a few weeks back.

Don’t forget that Draghi is also at odds with Spain, as Finance Minister Luis de Guindos demanded unlimited support from the ECB before Spain officially asks for a bailout. Whether the ECB actually caves or not remains to be seen, but this definitely makes matters more complicated for the central bank!

For now, we’ll just have to wait and see what the ECB can come up with during their September 6 rate statement. I’ll keep y’all posted!