ECB Plays Fiddle While Markets Burn
For six days and seven nights the citizens of ancient Rome watched helplessly as their city burned. The massive fire that consumed Rome in 64 A.D. spread quickly. After it was over, 70 percent of the city had been destroyed.
"Of Rome's 14 districts, only four remained intact. Three were leveled to the ground. The other seven were reduced to a few scorched and mangled ruins," wrote the contemporary Roman historian Tacius. Half of Rome's population was rendered homeless by the fire.
As is typical in such mass tragedies, rumors began to circulate. Many speculations were directed toward Roman emperor Nero who, it was rumored, calmly played his fiddle while Rome burned.
The idea that Nero fiddled while his city burned is peculiar - the violin wasn't invented for another 1,500 years. To the contrary, when news of the fire reached him, Nero rushed back to the city from his palace in Antium on the outskirts of Rome and took immediate and expansive measures to provide relief for his citizens.
Today, Bloomberg reported from two unnamed euro-area officials that the ECB is conducting a comprehensive review of all its policy tools and has no immediate plans to increase stimulus even as European and global market turmoil mounts.
According to the official, the review as mandated by the central bank’s six-member Executive Board intends to assess the effectiveness of its measures including the bond-buying and long-term refinancing operations. The timeline for the review is scheduled to be completed at some point after the newly announced Greek elections set for June 17th or in July.
The officials spoke to Bloomberg on condition of anonymity because the deliberations are private. A third official also said the ECB may not consider taking any further policy action until July, and that the bank sees current market tensions as a way of focusing politicians’ minds on reform efforts.
From the desk of Reuters, today the European Central Bank has also stopped providing liquidity to some Greek banks as they have not been successfully recapitalized. Meanwhile, Greek's Central bank head George Provopoulos said yesterday that Greeks have withdrawn as much as 700 million euros from Greek banks and the situation could get worse, according to the transcript of the president’s meeting with party leaders on May 14th.
The situation in Greece is becoming eerily similar to the Argentinian financial crisis of 1999-2002 which climaxed with a run on the banks, large-scale rioting in Buenos Aires and a massive devaluation in the country's currency.
ECB President Mario Draghi said today that while the council's “strong preference” is that Greece stays in the euro area, it won’t compromise on its principles to prevent an exit. For now, Draghi is comfortable playing his fiddle - perhaps a prelude to Greece as his sacrificial lamb.