Firing blanks?

Photographer: Jasper Juinen/Bloomberg

ECB Had One Win. Revise That Down to Zero.

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
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The only discernible success from this year's belated introduction of quantitative easing by the European Central Bank has been the relentless, export-boosting, growth-goosing deterioration in the euro's value against the dollar. Thursday's monetary policy decisions have undermined even that modest triumph.

For once, there wasn't a bazooka in Mario Draghi's pocket (to recycle former U.S. Treasury Secretary Henry Paulson's July 2008 quote about how to browbeat financial markets into submission). The ECB cut its deposit rate, but by less than traders had anticipated. The bond-buying timetable was extended by a few months, but the monthly amount was left unchanged at 60 billion euros ($65 billion). The range of securities was expanded to include municipal bonds, but not corporate debt. In short, Draghi overpromised and underdelivered.

In one sense, Draghi is a victim of his own previous success. He has repeatedly exceeded expectations, managing to surprise traders and investors with bolder moves at ECB gatherings than anticipated. By contrast, Thursday's modest tweaking suggests resistance to further use of so-called unconventional measures may be stiffening among some of the ECB's policy makers. Even the decision on the limited extension was "not unanimous but there was a very large majority in favor of this package," Draghi said at his news conference.

The euro's reaction was immediate and quite dramatic, as traders drove the currency up against the dollar to a peak of almost $1.09, up from just $1.055 prior to the decisions:

Source: Bloomberg

Now, in the context of the euro's decline from $1.21 at the start of January, this ascent of a bit more than 2 percent still leaves Draghi's currency down by more than 10 percent on the year. But today's milquetoast moves suggest the ECB recognizes that it's nearing the limits of what it can do for the region's economy without more parallel efforts on the part of the bloc's governments -- in which case the region's exporters shouldn't abandon any hopes of a helping hand from further policy-prompted euro weakness.

"If you have a squirt gun in your pocket you may have to take it out," Paulson told U.S. regulators more than five years ago, when he was seeking permission for unlimited funds to rescue the financial system. "If you have a bazooka in your pocket, and people know you have a bazooka, you may never have to take it out."

Now that investors and traders suspect Draghi is relying on a squirt gun, he'll struggle to repeat the trick he's pulled off several times of talking financial markets up and the currency down.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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