Draghi Knows Credibility is Key: Barroso

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Oct. 24 (Bloomberg) -- Antonio Barroso, Senior Vice President at Teneo Intelligence, discusses statements made by Mario Draghi and the importance of coming ECB stress tests. He speaks on Bloomberg Television's “The Pulse.” (Source: Bloomberg)

Fail banks if they need to fail.

He is doing that despite an ongoing battle with politicians about who is going to pick up the check.

I think draghi gets the main problem here which is credibility.

They don't want to see another ireland.

He knows the credibility of the key.

If the stress tests are finally credible, this will be determined by the markets.

The big problem is, if the ecb decides to fail banks, who is going to put the money on the table?

You don't have a european-wide fiscal backstop i can provide the money.

It is going to be on the shoulders of member states.

How does draghi play this?

What does he need to do to get things to work the way he wants them to?

He is fighting politicians here.

This is not monetary policy.

This is politics.

I think what he said yesterday is the first step is saying look, if i have to fail banks, i will fail banks.

You better get your act together.

This is the way to put pressure on national capital.

Problem is it doesn't seem to work.

I don't think some countries are ready to put money on the table to pay.

The problem is that he is on the hook.

If it goes wrong and he fails a bank and it is a big hole and country a has to fill that hole and country a's bonds start rocketing in terms of yield, people are going to be looking at the government.

They will be looking at draghi.

But then he will say, maybe you should apply for a program.

He doesn't want to do that.

It depends.

He might not want to do it but there is a tendency to try to resolve problems this way.

Look at spain.

There was no european money directly.

They said, we're going to go in and make sure that your financial sector is clean.

I still can't get my head around the fact that he is talking about transparency and at the same time, we are talking about putting pressure on politicians to make sure the backstop is there.

If he is truly transparent, then we could have a problem.

His i will do whatever it takes comments start to the questions.

On such a tight rope, at any kind of slip along the line, it is going to start wobbling.

This is the mystery for the last few years.

-- the story for the last few years.

I think if we get to that point, if you have to start buying bonds, he will force that application.

I have no doubt about it.

All the statements that he has delivered in the last year -- if we get to where we were a year ago, then countries will have to apply.

We will try to basically -- if they penalize banks for having significant holdings of their own sovereign bonds, what are the implications for a feedback loop into the wider bond market?

As you know, they [indiscernible] there will be a problem.

It will be extremely problematic.

He has his work cut out for him.

A few tough days.

Antonio, thank you very much indeed.

Still to come on "the pulse," sales growth has slipped to a four-year low.

What can it do to boost demand for soaps and spreads?

That story right here on "the pulse" next." ?

This text has been automatically generated. It may not be 100% accurate.

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