Weekend Economists Down Under May 23-26, 2014

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81. Draghi’s Mountain Retreat Contemplates New ECB Horizon

http://www.bloomberg.com/news/2014-05-24/draghi-s-mountain-retreat-contemplates-new-ecb-horizon.html

When Mario Draghi secludes himself with Europe’s top minds in central banking this week he won’t be able to escape one question: What’s next?

After all but promising that he’ll ease monetary policy in June, the European Central Bank president must now manage market expectations as banks from Goldman Sachs Group Inc. to Societe Generale SA speculate whether he’ll go further and deploy large-scale asset purchases in coming months. Draghi will today open the first ECB Forum, a gathering of policy makers and academics to be held annually in the mountains northwest of Lisbon.

What Draghi says in three appearances over the next two days could provide clues on how he plans to overcome the stubbornly-low inflation that’s threatening the euro area’s return to economic health. Officials have said they’re working on a package of possible measures for the June 5 policy meeting, including interest-rate cuts and liquidity injections, while holding out the prospect of quantitative easing as a more-powerful option.

“An important part of the package will be the accompanying words,” said Francesco Papadia, a former director general of market operations at the ECB and now chairman of Prime Collateralized Securities in Frankfurt. “If he says that the council has given a first installment of measures and will be ready to do more if needed, especially when it comes to bringing inflationary expectations more quickly toward 2 percent, this could give more weight to the easing package.”