Carsten Brzeski van ING:

'All in all, the ECB has presented a big new bazooka which should help buying time. This is probably he furthest the ECB can go to help governments. The focus on the monetary policy transmission and strict conditionality should also calm the Bundesbank temper, even if they would not admit it. However, the emphasis on the transmission mechanism is also a danger as it still contains a logical contradiction. With the OMT, the ECB will only repair the transmission mechanism in countries with ask for EFSF/ESM. But what about the other countries? It remains a bit strange. For the time being, one thing is clear: never underestimate Mario Draghi. He clearly delivered on his “believe me it will be enough” announcement. A man, a word. But as he said himself: “the proof is in the pudding”.'

Richard Tang van RBS Securities:

'The real beginning of the end of the Eurozone starts today. Officially, today the ECB will begin to socialize the debt of the Eurozone and pool the ultimate losses. More importantly, nations are implicitly signing on to share in the burden of the future liabilities of the entire zone which will become acute as we approach the social liability obligation in the latter part of this decade that has not been addressed and in fact, worsened in recent years. The European Baby Boomers will begin to retire en masse no longer decades from now but now only years.

By giving up seniority on its bond purchases, the ECB is effectively beginning a process of debt cost mutualization that will be the ultimate unraveling of the monetary union. Simply, they buy the debt of the essentially insolvent periphery and issue short-term obligations of the entire Eurozone to fund it. In some ways, it's not so different than the U.S. govt issuing federal debt and aiding insolvent states. The part that is different is that the individual states do not have the right to vote their way out of the union (we saw how that ended last time). This the essence of my view.'

(..)

'The bet the ECB elite is making is that the economy improves dramatically before these liabilities become untenable. If somehow the world's central banks engineer a significant global recovery, they can grow their way out of all these problems, retire at age 60 and sip prosecco for the next 22 years of life expectancy. If not... Houston, we have a problem. You decide. The zone will fragment as countries, such as Finland who spent the early 1990s in a miserable fiscal crisis to morph into a 50% debt-to-GDP ratio, lose the control of their voting populace and ultimately, management changes. It's always different when you have to open your own wallet.

The fact that Draghi claims this unlimited bond buying program is conditional is laughable. I challenge the ECB to sell the debt the first time one of these countries violates the framework into a market that is gapping lower. This is debt mutualization without real fiscal union or enforceability. This is not today's problem, tomorrow's problem, or next month's problem, but it is a problem in coming years and a near inevitability.'

Elag Bartsch van Morgan Stanley:

'Going beyond our expectations, the ECB revealed
technical details on its bond purchase programme,
called outright monetary transactions (OMT)'

(..)

Looking ahead, the ball is firmly back in the court of
governments when it comes to an activation of the
OMT, notably in Spain and, possibly, also in Italy. In
this context, we note that the FDP, the junior coalition
partner in the German government, has expressed its
opposition to OMTs today, suggesting that a Bundestag
vote on an EFSF/ESM programme necessary to start
OMTs might become dicey for Chancellor Merkel.'

Azad Zangana van Schroders:

“In our view, the ECB has taken another step in the right direction, but is still some way away from totally removing the tail risks that investors fear. While the ECB has found the big gun in bond buying, it is missing the ammunition to make a long lasting positive impact on markets. Although the OMT will have no explicit limit to the amount of purchases, there is a serious flaw in its design. The ECB’s insistence to sterilise the bond purchases means that the ECB can only buy bonds as long as demand for Euro T-bills remains (the sale of which absorbs the liquidity released by the bond purchases). If demand dries up, as it did for the SMP at the start of the year, then the bond purchases would be halted. In that sense, Draghi may be overreaching when he said that the ECB would “backstop” the monetary union.

“With regards to the ECB’s creditor status being lowered, this should help encourage more investors to buy peripheral debt. There was a fear that if the ECB was to start buying bonds but retain its senior status, existing and future private investors would have been subordinated, as was the case when Greece eventually defaulted.

“Overall, useful measures being taken today which will help bring relief to peripheral Europe in the short-term. However, the capacity of the ECB and European governments to bail-out Spain AND Italy is seriously lacking, and will continue to be short until the ECB and Germany realise that Fed-style Quantitative Easing is the only effective tool.”

Huw Pill van Goldman Sachs:

'The European authorities’ new policy initiatives have elements of both responses: the ECB’s new sovereign debt purchase scheme offers a bridging device to maintain financing to the periphery, while the associated EFSF / ESM conditionality is designed to support fundamental reforms aimed at breaking the ‘red line’.

In countries where some market access has been retained and problems are largely of a liquidity nature (e.g., Italy) this may prove sufficient. But where the fundamental challenges are greater (e.g., Spain), more aggressive bridging measures – such as further credit easing measures – would be beneficial and are likely at some stage so as to maintain the
economic and political feasibility of the necessary but painful fundamental
adjustment.'

Johannes Muller van DWS Investments:

“Om het besluit in een bredere context te plaatsen: hiermee pakt de ECB een grote weeffout in de Europese Monetaire Unie aan. We hebben toenemende divergentie gezien van de monetaire condities in de verschillende lidstaten. In economisch sterke landen is de rente voor de private sector gedaald, terwijl deze is gestegen in zwakke landen, die toch al te lijden hebben onder bezuinigingen, hoge werkloosheid, enzovoorts. De verschillen in de rentes op staatsobligaties hebben zeker aan deze trend bijgedragen. Door een herconvergentie van de rentes op staatsobligaties te forceren, probeert de ECB tegelijk een herconvergentie van de rentes voor de particuliere sector te bewerkstelligen.

“De reparatie van zo’n grote weeffout moet dan ook als positief worden gezien. Dat de ECB de liquiditeit zal neutraliseren die door de aankoop van obligaties wordt gecreëerd, moet de vrees voor een plotselinge opleving van de inflatie wegnemen. Wij zijn echter van mening dat het een taak van de politici in de eurozone was om dit probleem op te lossen. Er zijn veel voorstellen gedaan, zoals de oprichting van een Europees schuldaflossingspact. Helaas is de politiek niet in staat geweest om met een oplossing te komen, en dus moest de centrale bank opnieuw ingrijpen. Botweg gezegd: belastingbetalers zijn gespaard, maar nu moeten spaarders de rekening betalen doordat ze een kunstmatig lage rente moeten accepteren. Financiële repressie, here we come!”

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