It’s not the first time Mario Draghi will have felt misunderstood. On Tuesday, a speech he gave at the European Central Bank’s annual forum in Sintra, Portugal, sent the euro surging upwards. Markets believed he was signaling an earlier end to the ECB’s loose monetary policy. A day later, Mr. Draghi’s ECB let it be known that markets had gone too far: His statement was supposed to be more measured. The euro tumbled, though it was spiking again by week’s end.
The episode shows that communication is key as the Frankfurt-based central bank slowly thinks about how to wind down the extraordinary steps it has taken since the 2008 financial crisis to keep the euro zone’s economy from collapsing. Just ask the U.S. Federal Reserve, which is widely seen as having messed up its own exit a year ago.
But communication isn’t everything. The reality is the ECB can’t keep up its loose monetary policy, which has included buying nearly €2 trillion in corporate and government bonds, much longer. Whether Mr. Draghi likes it or not, there simply aren’t enough bonds left to buy – especially in Germany.