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Mario Draghi's Reflective Assessment

06 April 2017 by pdonnat

The president of the ECB delivered today another reflective assessment on his policy - ECB Policy is working and the dovish forward guidance is legitimate. But Dr Weidmann is not so sure to give a ‘first’ to his colleague (and boss). The ECB keeps buying time either with its monetary policy or its banking supervision. On the latter, declaring the Italian regional lenders, Veneto Banca and Banca Popolare di Vicenza, solvent is just an opinion as NPL valuation is not a science. How many NPL valuations have been too optimistic over the last 10 years, in Europe and in the US? ECB being lenient, the Italian government can keep bailing out its banking system. There is a time to look for an external assessment of the central bank policy. The CDS market gave indeed a ‘first’ to Mario Draghi. The European financial CDS has outperformed today the broader CDS market. The indices traded all the way tighter in a straight line during the European session. But buying time is no more than a ‘2.2’ grade. Looking at France having bought time over the past 5 years and having not solved its structural issues, Mario Draghi should look for more exemplarity to deserve a ‘first’.