Draghi Deflation Fight Seen on Different QE Path to Fed

[greengiraffe]

US tapering but Japan and Euroland still on QE while China is on standby mode. Abundance of liquidity helps to explain why global equities remain well supported after years of uptrend amidst lack of clear and convincing economic growth.

http://www.bloomberg.com/news/2014-04-03...fight.html

Draghi Deflation Fight Seen on Different QE Path to Fed

By John Fraher and Jana Randow Apr 5, 2014 12:37 AM GMT+0800

European Central Bank President Mario Draghi’s version of QE might turn out to be rather different from the type deployed by the Federal Reserve.

As ECB officials try to stamp out the risk of deflation, Draghi yesterday gave his strongest signal so far that the ECB is prepared to embrace a policy that has become a byword for large-scale government bond purchases. And yet, the structure of the euro region’s economy means the ECB will also need to find its own approach to quantitative easing.

Draghi is using the QE label as a tool to convince investors that policy makers in the 18-nation euro region are determined to prevent a Japan-style deflationary spiral. At the same time, there are political and economic obstacles to a euro-wide wave of sovereign-bond purchases, and a program aimed at boosting bank lending may prove to be more effective.

“The ECB is likely to be more focused on buying bank loans than on buying government bonds,” said Elga Bartsch, chief European economist at Morgan Stanley in London. “Given the political and legal concerns around purchases of government bonds, we continue to believe that a consensus on buying private-sector assets would be easier to reach.”

‘Unanimous’ Commitment

Even so, the ECB has already simulated bond purchases of as much as 1 trillion euros ($1.4 trillion) to assess the effect on inflation, a person familiar with the situation said today. The person said there there is no pre-agreement on any QE action or its size.


Photographer: Ralph Orlowski/Bloomberg
Investor reaction to Draghi’s QE announcement yesterday was muted. The Euro Stoxx 600... Read More
The euro was down 0.1 percent at $1.3706 at 6:15 p.m. Frankfurt time. The yield on Spain’s 10-year government bond fell 8 basis points to 3.15 percent.

Draghi yesterday said the Governing Council was “unanimous” in its commitment to exploring new policy avenues, including asset purchases.

“There was a discussion about QE, it wasn’t neglected,” he told reporters in Frankfurt after policy makers kept their benchmark interest rate at a record-low of 0.25 percent.

Draghi is trying to steer an economy whose lending dynamics are different to those of the U.S., where deeper capital markets make it easier for the Federal Reserve to guide the economy through asset purchases.

Bank Lending

The ECB Seeks Options to Aid Economy

While U.S. firms tap markets for about three quarters of their lending, companies in the euro region rely on loans from banks for the same proportion of their borrowing.

That makes it harder for the ECB to use asset purchases as a way to improve credit conditions for small-and-medium sized enterprises, the backbone of Europe’s economy.


Photographer: Ralph Orlowski/Bloomberg
Mario Draghi, president of the European Central Bank (ECB), pauses during a news... Read More
“The banking system is more essential to the euro area than other financial systems that are more market-based,” Draghi said. Any program “has to be carefully designed in order to take this element into account,” he said.

Buying sovereign bonds is politically and legally difficult for Draghi. The ECB’s founding treaty forbids it from financing governments. Draghi would also have to choose which countries’ bonds the central bank should acquire. If the ECB were to purchase debt proportionate to the size of its member countries, more than half would come from nations like Germany and France. Targeting peripheral countries could undermine efforts to make them rein in spending.

‘Intellectually Ready’

Draghi’s remarks yesterday nevertheless suggest that ECB officials are committed to new measures, whatever the challenges.

“True, we are left with a great deal of confusion as to which market exactly could be targeted, under which conditions, and when,” said Frederik Ducrozet, an economist at Credit Agricole CIB in Paris. Still, “what’s getting clearer by the day is that the ECB is now intellectually ready to react to the risk of a ‘lowflation’ with radical, non-conventional action.”

Draghi may need two months to build consensus on QE, Former ECB Executive Board member Lorenzo Bini Smaghi said in interview on Bloomberg Television in Cernobbio, Italy today.

“A decision by consensus or by unanimity is much more effective on the markets than one with a split majority,” he said. “In his thoughts probably it’s worth waiting one or two months to have a full consensus.”

Inflation Outlook

Options open to the ECB include awarding banks with long-term loans on condition they lend it on to the broader economy. The bank could stop sterilizing the 175.5 billion euros ($241 billion) worth of government bonds it still holds from a previous purchase program, a step that would boost liquidity in money markets.

Or officials could buy private-sector debt. At the same time, Draghi acknowledged that this is more complicated because the market for asset-backed securities dried up during the financial crisis.

The trigger for any ECB action will be consumer price data over the coming months. While Draghi yesterday reiterated the ECB’s forecast that inflation would move toward its 2 percent ceiling by the end of 2016, the rate of price increases is only a quarter of that at present.

This month’s initial report on euro-area inflation is due on April 30.

Dovish Message

“If annual inflation prints rise gradually towards 1 percent in the coming months and medium-term inflation expectations remain stable -- as we and, according to Mr. Draghi, the Governing Council expect -- we expect the ECB to refrain from engaging in further, more aggressive unconventional measures,” said Dirk Schumacher, a Frankfurt-based economist at Goldman Sachs Group Inc., which had forecast the benchmark rate would be cut to 0.1 percent yesterday. “We also no longer expect further easing in policy rates in the coming months.”

Any ECB decision to embark on asset purchases, of whatever shape, will be given added credibility by Bundesbank President Jens Weidmann’s endorsement last week. In an interview with Market News International he agreed to such a step in principle, signaling a departure for the German central bank, that has historically been suspicious of such measures.

Two German policy makers resigned over an earlier ECB bond purchase program and in the summer of 2012, Draghi had to cobble together a plan to save the euro against the opposition of Weidmann himself.

Now, Draghi needs to show what he will actually do after the “verbal pyrotechnics” have died down, said Richard Barwell, senior economist at Royal Bank of Scotland Group Plc in London.

“The Governing Council wanted to deliver a dovish press conference and to do that, the one thing the market really wanted to hear was that asset purchases are on table,” he said. “If they’re forced to do it, they will act, but my feeling is they’ll never get there.”

To contact the reporters on this story: John Fraher in London at jfraher@bloomberg.net; Jana Randow in Frankfurt at jrandow@bloomberg.net

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net Paul Gordon

[greengiraffe]

ECB set to start printing money
PHILIP ALDRICK THE TIMES APRIL 26, 2014 12:00AM

ECB set to start printing money
Mario Draghi, president of the European Central Bank, has indicated the ECB is ready to lunch a round of quantitative easing. Source: AFP
MARIO Draghi has dropped another strong hint that the European Central Bank is ready to launch quantitative easing as he warned of the mounting risks posed by the strengthening euro.

Speaking in Amsterdam, the ECB president said that “the exchange rate is an increasingly important factor in our assessment of the outlook for price stability” and argued that any further rise could trigger a monetary response.

Draghi is contending with dangerously low inflation, at 0.5 per cent, that could be pushed even lower by a stronger exchange rate. He has signalled that the ECB would consider QE, negative interest rates or other measures if it feared that deflation was becoming a real threat. Addressing a potential rise in the euro, he said: “This would call for policy action.”

The euro fell slightly against the dollar after he spoke, but economists said that the mounting evidence of recovery in the single currency bloc was underpinning the currency.

Christian Schulz, a Berenberg economist, said: “We’ve had so much of this (talk) but no action and the economy seems to be going the other way — it’s getting stronger and stronger, which makes it more difficult to get a unanimous vote for more monetary policy easing in May or June.”

Germany provided fresh proof of recovery after its Ifo business climate index surprisingly rose this month, indicating that Europe’s largest economy is on track for firm growth. The Munich-based think tank’s index, based on a monthly survey of about 7000 companies, increased to 111.2 from an unrevised 110.7 last month and against forecasts of a fall to 110.5.

The reading slipped last month on concerns about tensions between the West and Russia over Ukraine, and similar fears were expected to weigh on sentiment again. Germany gets more than a third of its gas and oil from Russia.

The Times

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Lesser pressure on EU

http://www.cnbc.com/id/101640265

Portugal decides on 'clean exit' from bailout

Reuters
COMMENTSStart the Discussion

Peter Weber | Getty Images
Portugal said on Sunday it would exit its three-year 78-billion-euro bailout this month without a precautionary credit line, as the country returns to growth after years of painful austerity and unpopular reforms.

The cabinet decision was announced by Prime Minister Pedro Passos Coelho in a televised address to the nation and means the country will no longer have to answer to foreign creditors after the bailout ends on May 17.

"The government has decided to exit the assistance program without turning to any kind of precautionary program," Prime Minister Pedro Passos Coelho said, flanked by his entire government which met Sunday to make the decision.

"This is the right decision," he said, adding that Portugal's European partners would back whatever decision the government took. Portugal is the second euro zone country after Ireland to exit an assistance program.

Read More'We feel lost': Young people hunt for work in Europe

"The European Commission takes note of this decision and, as previously stated, will support the Portuguese authorities and people in this sovereign choice," said Siim Kallas, vice-president of the European Commission, in a statement.

Lisbon is set to formally communicate the decision to the Eurogroup of finance ministers at a meeting on Monday.

The decision to exit the bailout without a security net is a major success for the government, which has won over investor confidence by sticking to the harsh austerity and reforms required by the bailout. Lisbon was forced to seek the bailout from the European Union and IMF in 2011.

"By agreeing to adopt what was imposed by the international creditors, Portugal won the ticket to get a free ride from the strong international recovery," said Filpe Garcia, head of the Informacao de Mercados Financeiro consultancy.


PLAY VIDEO
It's nearly time to get out of Europe: Pro
James Butterfill, global equity strategist at Coutts, says that earnings are becoming more important with each quarter, and that so far for Europe it has been a "earnings-less recovery."
The centre-right government has stuck to the bailout plan and met targets to cut the country's budget deficit. That cost it some support but the government's popularity has stabilized since the economy started to recover in the middle of last year.

The government's biggest challenge has come from the country's supreme court, which has shot down a number of austerity measures demanded by the bailout.

Read MoreSell in May and go away: Is it true?
"The Portuguese authorities have established a strong track record of policy implementation to address the country's long-standing structural problems," IMF Managing Director Christine Lagarde said in a statement.

"This bodes well as Portugal exits its EU/IMF-supported program."

Bond Yields Down

Portugal's economy suffered its worst downturn since the 1970s under its bailout. But economic activity turned positive again last year and bond yields have fallen sharply this year, boosting optimism that Portugal would be able to exit the bailout and return to financing itself in bond markets.

Read MoreInvestors jittery about global economy: Here's why

The country passed the last review by creditors of its economy under the bailout last week, putting it on track to exit the plan without needing further help.

"The fact that Portugal doesn't need a precautionary program is another vote of confidence by European partners," said Felipe Silva, head of debt at Banco Carregosa.

"Investors accept Portugal's risk and that is very positive."

Portugal's 10-year bond yields currently trade around 3.65 percent - close to the lowest levels in eight years - after peaking near 17 percent at the height of the debt crisis in 2012. Portugal's 10-year yield trades around 220 basis points over equivalent German bonds.

At one point at the height of its debt crisis, many economists thought the country would be forced to default on its debts like Greece. Instead, by making a clean exit from the bailout without needing a financial backstop, Portugal is following in the footsteps of Ireland, which became the first euro zone country to successfully exit a bailout in December.

[greengiraffe]

Now ECB is opening the floodgates...

http://www.cnbc.com/id/101733784

EUROPEAN CENTRAL BANK
Draghi breaks new ground with negative interest rate
Katy Barnato | @KatyBarnato
49 Mins Ago
CNBC.com
148
COMMENTSJoin the Discussion

The European Central Bank (ECB) took the unprecedented step Thursday by imposing a negative interest rate on banks for their deposits—in effect charging lenders to park money with it.

The move was part of a series of measures to combat the euro zone's growth-sapping disinflation and give a push to its stuttering economic recovery.

At its June monetary policy meeting, the ECB cut the rate on its deposit facility for banks from 0 percent to minus 0.10 percent—the first time a major global central bank has moved rates into negative territory.

It also cut its main interest rate to from 0.25 percent to 0.15 percent, and cut the rate on its marginal lending facility by 35 basis points to 0.4 percent from 0.75 percent.

Read MoreLive blog: ECB cuts rates, more stimulus on the way
ECB President Mario Draghi also unveiled other measures in his regular press conference in order to get funds flowing to businesses and households.

"Today, we decided on a combination of measures to provide additional monetary policy accommodation and to support lending to the real economy," he said in his introductory statement.

The initiatives included longer-term refinancing operations (LTROs), in which the ECB lends to banks at low interest rates, in order to encourage them to lend to households and non-financial corporations.


In addition, he said the ECB had undertaken "preparatory work" in order to conduct a form of U.S.Federal Reserve-style bond-buying by purchasing asset-backed securities (ABS) from banks.

Furthermore, Draghi said the ECB would cease sterilizing the liquidity injected from its Securities Markets Program. The program involved the purchase of bonds from troubled "peripheral" euro zone countries.

"We decided on a combination of measures ... to support lending to the real economy," Draghi said.
The euro zone's inflation rate is currently well below the ECB's target of just under 2 percent, having fallen unexpectedly to 0.5 percent last month, its lowest level since autumn 2009.
The euro declined against the U.S. dollar to 1.351 from 1.3600 after Draghi began speaking. It has shed almost 3 percent from highs near $1.4000 after Draghi prepared the market in May for possible policy action in June.

Meanwhile, the German Dax index rose above 10,000 points for the first time ever and the pan-European FTSEurofirst 300 rose to 1,387.

"We think this is a significant package," Draghi said. "Are we finished? No."

He said the decision to launch a raft of stimulus measures had been unanimous across the ECB's decision-making council.

"I am really very grateful to all my colleagues on the Governing Council," said Draghi.

Kit Juckes, macro strategist at Societe Generale, said Draghi's policy announcement would boost markets across the board.

"The gist is that he is doing everything short of full QE (quantitative easing) to support the economy, and that will be reflected in stronger asset prices generally," Juckes said in a research note.

"The carrot of full QE is still dangling in front of us."


Draghi denied his program would discourage euro zone countries from continuing with painful but necessary structural reforms.

"Our package is not a disincentive for structural reforms. Clearly they are two different things," he said. "Are we completely comfortable with the level of structural reforms by governments? No."

Click here for the latest on the markets.

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No relief

Karen Maley
1468 words
7 Jun 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.

Stimulus The euro zone has hit the emergency button, writes Karen Maley.

Mario Draghi this week ventured where no head of a major central bank has ever gone before when he ann­ounced plans to cut a key interest rate below zero in an attempt to stave off the looming threat of deflation.

The European Central Bank's attack on deflation – defined as a widespread and sustained fall in prices – was widely expected after the euro zone's annual inflation rate slumped to 0.5 per cent in May, down from 0.7 per cent in April, and well below the central bank's target of just below 2 per cent.

Even Germany, which is the strongest economy in the region, saw its inflation rate fall to the lowest level in four years, with consumer prices rising by 0.6 per cent in May compared with 1.1 per cent in April.

But the ECB's move has also fanned the currency wars, as major economies use monetary policy in an attempt to drive their exchange rates lower and bolster export sales. HSBC Australia chief economist Paul Bloxham said: "I think part of the ECB's objective is to put downward pressure on the euro, so it is a continuation of the currency wars for them.

"The challenge they face is that inflation is falling and their number-one fear is the threat of deflation – you only have to look at what happened in Japan to see how destructive that can be.

"So, to avert that, the European Central Bank has taken what to me are some quite extraordinary measures, including introducing negative deposit rates. Their objective is to lift inflation and one way to do that is to have a lower euro."

The ECB's latest move will make it even more difficult for the Reserve Bank to push the Australian dollar lower.

In a statement released after the RBA board this week decided to keep its cash rate at 2.5 per cent, the central bank's boss, Glenn Stevens, noted that "the exchange rate remains high by historical standards, par­ticularly given the further decline in commodity prices".

According to Bloxham, "the Reserve Bank has for a while been rather frustrated by the fact that the major global central banks are doing extraordinary things to support their economies, and this does have a flow-on effect for Australia.

"They'll be frustrated by the fact that another central bank is going down the path of further unconventional policy easing."

The downward pressure on prices in the euro zone is being exacerbated by excessive unemployment, with the jobless rate across the region stuck at a stubbornly high 11.7 per cent in April. The combination of recession and brutal government spending cutbacks has resulted in Spanish wages falling by between 8 per cent and 13 per cent since 2010, while Greek wages have been dropping by 3 per cent a year since 2010.

And the euro's strength has added fuel to the deflationary pressures. The euro has risen from $US1.20 to $US1.36 since June 2012. After the ECB's announcement, the euro fell to a four-month low of $1.35, although it later clawed back its losses.

Europe's political classes, who were stunned by the groundswell of support for euro-sceptic parties in last month's European parliamentary elections, were quick to welcome the ECB's moves to slash its main lending rate to a record low of 0.15 per cent, cut the rate on bank deposits parked overnight with the central bank to minus 0.1 per cent, and make €400 billion ($585 billion) in cheap four-year loans available to banks provided they boost lending to the private sector.

French President François Hollande, whose government has pushed hard for more initiatives to stimulate Europe's feeble economy and weaken the euro, was quick to praise the ECB's decision.

He noted the central bank was "conscious that the danger is not inflation, but deflation; the risk that economies don't pick up strongly enough, that businesses aren't able to get finance".

European politicians fear deflation more than almost anything. The bad points of European history have often commenced with deflation. It starts simply enough: households put off spending in the hope of paying lower prices in future.

Businesses, faced with falling sales and shrinking margins, are then forced to scale back their investment plans and cut employee numbers, which encourages ­consumers to spend even less. A vicious cycle is set off.

Falling prices also create major headaches for debt-laden governments. If a country is paying a 5 per cent interest rate on its borrowings and inflation is running at 2 per cent, the real interest rate is only 3 per cent. But when inflation falls to 0.5 per cent, the real interest rate climbs to 4.5 per cent. Even worse, if the country suffers a 1 per cent ­deflation rate, the real interest rate on the debt soars to 6 per cent.

But many economists doubt whether the ECB's latest moves – radical though they are – will be enough to boost economic activity and combat the spectre of deflation.

They argue that the ECB has shied away from the massive bond-buying programs – known as quantitative easing, or QE – that have been launched by the US Federal Reserve and the Bank of Japan. The US central bank's balance sheet has more than quadrupled to more than $US4 trillion after years of buying bonds to boost the economy.

Meanwhile, the BoJ last year unveiled plans to buy 60,000-70,000 billion yen ($628 billion-$733 billion) of Japanese bonds a year in the hope that it will lower the value of the yen against other currencies.

Even ECB boss Mario Draghi appeared to hint that extra measures were being prepared. "Are we finished? The answer is no. If need be, within our mandate, we aren't finished here," he said, adding that a bond-buying program remains an option.

One problem is that although Germany's conservative Bundesbank supported the ECB's moves this week, it is staunchly opposed to the central bank buying government bonds. What's more, the ECB's own statutes restrict the bank's ability to buy government debt, although it could conceivably buy other assets, such as securitised business loans.

An even more intractable problem is whether European banks, which are already struggling with high levels of problem loans and a shortage of capital, will respond to the ECB's incentives aimed at encouraging them to grow their loan books.

The ECB is presently conducting a review of the balance sheets of more than 100 European banks as a prelude to becoming the supervisor of the euro zone's largest banks in November.

But even though European banks have taken advantage of falling yields to raise tens of billions of euros of additional capital, some analysts estimate that the banks will need to raise hundreds of billions of euros of extra capital or else slash the size of their balance sheets if they are to withstand the next financial crisis.

The problem is even more acute for the smaller, peripheral banks which still struggle to raise capital. This has fuelled fears that lending to the region's small- and medium-sized businesses will continue to slide, despite lower interest rates.

Another cloud hanging over European banks is the prospect of having to pay hefty penalties to US authorities for a range of misconduct, including manipulating interest rate and foreign exchange benchmarks, aiding tax evasion and breaching American sanctions. France's largest bank, BNP Paribas, is under investigation for allegedly violating US sanctions and anti-money laundering rules by disguising transactions in US dollars with countries including Iran and Sudan. Reports suggest that any settlement is likely to include a fine of up to $10 billion and a suspension of the bank's ability to clear US dollar transactions.

The issue has raised hackles in Paris, with President Hollande writing to US President Barack Obama in April to protest against the "disproportionate" nature of the penalty being proposed for BNP Paribas.

But there are broader fears that US authorities could slap massive fines on other European banks. The ECB is looking closely at whether banks have set aside enough money to cover the potential costs arising from US investigations into alleged misconduct, and has asked national regulators to look at the effect of potential penalties on banks' stability.

In Europe, the effects of the global financial crisis are continuing to reverberate.

0.5 per cent The euro zone's annual inflation rate in May, down from 0.7 per cent in April.


Fairfax Media Management Pty Limited

Document AFNR000020140606ea6700003

[specuvestor]

Negative deposit rate makes a lot of sense to force bankers to lend as per observation with US banks post GFC. Draghi is pragmatic vs Trichet is ideological. ECB will do better with Draghi

[Art or Science]

Yet another precedence in monetary policy, following QE by both FED and BOJ (though Denmark did it a couple of year back)...

More lending by banks? More investments and spending in EU countries?

Even more funds/monies going to flow out of EU and into Asia and US?

Hope this experiment by Draghi turns out to be okay..

[freedom]

How to increase lending when the problem is not liquidity but capital?

With Basel 3, even the "stronger" banks are weak in terms of capital, not mentioning a lot of other weaker financial institutions. See no further that deutsche bank, one of the supposedly stronger bank in Europe, just raised 8(can't remember the exact figure) billion euros of equity.

However, hopefully, ecb will push through securitization and move the loans out of the balance sheet of the European banks so that they can lend again. But, the problem is that ecb can't and should not take loss on anything it buys(the QE in US is successful precisely because it did not take any loss). ECB needs a strong party to take the loss before it taking any loss, preferably a pan European government institution, which can take more loss, or less preferably a union of European banks.

[greengiraffe]

http://www.todayonline.com/business/ecbs...k-us-years

PUBLISHED: JUNE 7, 3:51 PM
PARIS - Euro zone interest rates will diverge from those in the United States and Britain for a number of years, European Central Bank (ECB) Executive Board member Benoit Coeure told France Inter radio on Saturday.

Speaking after the ECB this week cut rates to record lows, Coeure said they would remain around that level for a long time, whereas central banks in the United States and UK would at some point raise rates....

[greengiraffe]

PUBLISHED JUNE 10, 2014
Little left in Draghi's armoury but asset buying

Mr Draghi: Has made it clear that after last Thursday's cuts in interest rates to record lows, 'for all the practical purposes' the European Central Bank has run out of room to lower them further. - PHOTO: BLOOMBERG
[FRANKFURT] European Central Bank (ECB) chief Mario Draghi has whetted markets' appetite for more ECB policy action but investors will have to wait some time before he uses the only real option that he has left - a major asset-buying plan.
First he will want to assess the effectiveness of the loosening package that he presented last Thursday - rate cuts and measures to pump money into the sluggish eurozone economy. Then he will also have to overcome German resistance if he wants to do anything further.
Bundesbank chief Jens Weidmann has already fired a shot across Mr Draghi's bow, saying that it is "absurd" to talk about further policy action.
Except for so-called quantitative easing (QE) - or printing money to buy assets - there is little left in the ECB armoury after last Thursday's announcement of new measures to try to steer the eurozone away from the economic quicksand of deflation.
Mr Draghi's comment after presenting the package that "we aren't finished here" clearly indicates that QE is on the table. But the ECB first wants to assess how the new measures work - and they will only dribble out over the rest of this year.
ECB vice-president Vitor Constancio, a dove on the Governing Council, said last Friday that it would take the ECB until December to assess whether these steps had succeeded.
Mr Constancio also stressed just how high the bar is to QE: "If we see a sort of vicious circle emerge out of (low) inflation and an unanchoring of expectations and an outward shock that would create a reverse spiral, that would require a broad programme of asset purchases," he said in London.
The ECB does not expect such a vicious circle but it is facing a morose economic outlook. Updated ECB staff forecasts included a cut in the inflation forecast for this year to a mid-point of 0.7 per cent from one per cent in March.
The ECB experts saw inflation averaging just 1.5 per cent in the final quarter of 2016 - still below the ECB's target of just under 2 per cent.
What is more, the ECB has used all the meaningful measures that it has apart from QE. Mr Draghi made clear that after last Thursday's cuts in interest rates to record lows, "for all the practical purposes" the bank had run out of room to lower them further.
The new package also included a series of measures to pump money into the sluggish eurozone economy. "Everything has been done now," said RBS economist Richard Barwell. "The only thing they've got left now is a broad-based asset purchase programme. If we get bad news, the logical response from the market will be: you've got nothing else, you've got to do QE now."
But the ECB may have boxed itself into a corner should the inflation outlook deteriorate further.
In an April 24 speech in Amsterdam, Mr Draghi set out three scenarios that would warrant ECB action: a de facto tightening of the bank's policy stance due to market tensions, problems transmitting its policy to all parts of the eurozone, and a deterioration of the medium-term inflation outlook.
With last Thursday's announcements, the ECB addressed the first and second scenarios, leaving only a bleaker inflation outlook as grounds for action. Mr Draghi said in Amsterdam that the response for this scenario would be a broad-based asset purchase programme.
"Their own narrative will now start boxing them in. Draghi's speeches were very clear," said Mr Barwell. "They cannot risk sounding complacent if the situation deteriorates, or we will be right back to square one with an appreciating euro and markets questioning their commitment to price stability."
Despite last Thursday's rate cuts and the announcement of measures to pump money into the sluggish eurozone economy, the euro ended up rising once markets had digested the ECB package, which, in fairness, had been widely expected.
A stronger euro gives consumers in the currency area more purchasing power over imported goods, exacerbating the bloc's weal inflation dynamics. Any policy inaction that drives up the currency further will only add to the ECB's policy conundrum.
For Nobel Prize-winning economist Paul Krugman, the ECB is already caught tight by deflationary forces, even if there is no overall deflation like the one that gripped Japan for many years.
Eurozone inflation slowed to 0.5 per cent in May. "People ask me: Is it possible Europe could turn into Japan? The answer is 'yeah'," Prof Krugman said in Rotterdam last Thursday. "The hard part is telling a story in which Europe does not turn into Japan."
The ECB releases its next staff inflation forecasts in September - a potential trigger for any further policy action, should the outlook deteriorate.
The new ECB measures include cuts in interest rates to record lows, the injection of liquidity into the financial system, a long-term refinancing operation (LTRO) to encourage banks to lend to firms and work on the ECB buying asset-backed securities (ABS).
The LTRO funding offers will be made in September and December, while the ECB is still working on the plan to buy ABS - so it will take time for the new package to take effect.
In Germany, this bid to jump-start Europe's economy has been greeted with dismay, with Mr Draghi's policy denounced as a "risky therapy" that could fuel US-style asset bubbles and discourage reform in crisis-hit euro states.
Chancellor Angela Merkel was noticeable in her absence among those congratulating the ECB last Thursday.
Securing Ms Merkel's support would help Mr Draghi if he wanted to pursue QE but his stiffest opposition would likely come from the Bundesbank's Mr Weidmann, Ms Merkel's former economics adviser. - Reuters