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DRAWBACK • Nonetheless, Draghi and others say the idea is still too close to financing governments. He made a forceful statement July 5 that the move would violate the ECB’s mandate and "destroy its credibility."
Still, the ECB has reversed course on other issues during the crisis.
LEND TO BANKS •
The ECB could expand its lending to banks for short-term loans. It would do that by agreeing to ease its rules on what types of collateral it could take for banks for these loans. It has already done this several times before and also given banks unlimited credit.
It could also make a third offer of cheap, three-year loans to banks, after two rounds that handed out $1.22 trillion in December and February. Some banks used the money to buy government bonds. That’s allowed under the ECB treaty because the ECB can loan any amount to banks — just not to governments.
DRAWBACK • Banks holding too much government debt is already one of the key risk factors in the crisis. A government default would hurt banks and cut off lending to the wider economy. More lending could make that worse.
CUT RATES •
Analysts say the ECB has room to cut the main refinancing rate it charges banks for loans from the current all-time low of 0.75 percent. It could also push the rate it pays banks for deposits — currently zero — into negative territory, a move aimed at pushing them to lend funds rather than stash them with the ECB. This could help bolster currently weak growth — which would help government tax revenues and make it easier to pay debts — and lower costs to shaky banks.
DRAWBACK • Rates are already very low and it’s not having much effect on business activity and borrowing.
Jonathan Loynes, chief European economist at Capital Economics in London, says Draghi’s remarks last week were a "pretty strong signal" the bank might intervene in government bond markets with limited purchases aimed at lowering countries’ borrowing costs, as it has before on a limited basis. Markets, however, appear to hope for that plus more, a comprehensive new approach.
"My guess is, the markets will be disappointed," Loynes said. "There was a lot of emphasis on those three words, ‘Whatever it takes.’ "But there are three other words that are just as important: ‘Within our mandate.’"
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