There is a point in Team America, Trey Parker’s epic puppet parody, when UN inspector Hans Blix is trying to convince Kim Jong Il to let him conduct a thorough search for nuclear weapons. “Let me see your whole palace – or else!” says Blix, to which the North Korean despot replies: “Or else…what?”
“Or else… we will be very very angry with you,” Blix says. “And we will write you a letter telling you how angry we are.”
Moments later, Blix is eaten alive by a shark – a fate arguably worse than having to run the European Central Bank. But while Mario Draghi should escape such a gruesome ending, the above sequence comes to mind every time the ECB boss drearily repeats his own futile political demands.
“Reform efforts need to be stepped up in the majority of euro area countries,” he said, again, yesterday, before adding: “All countries should strive for a more growth-friendly composition of fiscal policies.”
Later on, during his Q&A session, Draghi unenthusiastically referred to “some progress on the structural reform side”, and “some mildly expansionary fiscal policy”. The Italian knows, however, that his words have made little difference – and that such policies are currently a sideshow when it comes to the Eurozone. The real action concerns monetary matters, and the unfolding story is quite incredible.
Read more: Mario's market mayhem
Among the ECB’s menu of new measures published yesterday are: lower rates, delving further into negative territory; an even faster trillion-euro asset-buying spree that rivals Federal Reserve QE at its peak; a licence to snap up private sector companies’ debt; and, somewhat astonishingly, a plan that could involve paying banks to take its money.
The ultra-dovish move sent the euro into freefall while shares jumped and investors withdrew from safe-haven assets. But soon after, the market swung straight back the other way, when Draghi suggested that this could be the end of the road for rate cuts. So with the euro ending way up against the dollar, was it a disastrous day at the office for the ECB chief?
Not necessarily. While Draghi may be kicking himself over the market reaction, he has demonstrated a clear understanding of the risks that his central bank is taking. This degree of stimulus puts the ECB deep into uncharted territory, with many economists extremely worried about the potential side-effects.
For those who look at the bigger picture, it is comforting to hear Draghi insist that he will proceed with caution.