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Draghi shoulders the weight of Europe

At the end of this week the annual Jackson Hole meeting of central bankers will take place, but European Central Bank President Mario Draghi will be absent from the key event. Although Draghi had been expected to deliver a speech to his fellow central bankers it will no longer take place. An ECB spokesman was asked directly if Draghi would indeed be missing from the gathering and he replied, ‘That’s correct… he has a very workload in the coming days’.

This means that the core of the 23-man strong governing council will no longer be represented, as not one of the ECB’s six-member Executive Board will be joining the other top policy makers in the Federal Reserve hosted function.

With the global economic downturn and euro-zone crisis of constant concern the ECB head honcho’s absence from the instrumental U.S. retreat has piqued the curiosity of some.

At the time of the Jackson Hole meeting Draghi will be in talks with fellow ECB policymakers and the heavy workload cited as the reason for his absence in part relates to solidifying the details of the new euro defence bond-buying scheme.

Indeed, despite continuing Bundesbank opposition and a critical meeting being scheduled for September 6th, some feel that Draghi has chosen to withdraw from the Jackson Hole meeting so that he can announce a big development relating to this matter on Thursday.

But instigating a bond-buying frenzy is far from the only thing the ECB president has to contend with.

The European Commission has other proposals to reveal following next week’s meeting and a member of the ECB’s executive central six, Jörg Asmussen, made a speech in Hamburg on Monday in which he hinted at things to anticipate in the coming weeks. He intimated that intervention in the form of condition driven bond-buying was more than likely, with the short maturity bonds being purchased by the ECB from secondary markets. However, Asmussen did firmly reiterate that such action would come to pass only if currency bloc bailout funds were first made active in the primary markets: ‘The mistake with Italy in summer last year when the ECB bought Italian bonds while the time was unfortunately not used for the necessary adjustment measures must not be repeated.’

As a pre-emptive measure to guard against investor flight from struggling nations, a further issue needs to be resolved – that of seniority when it comes to private creditors.

Asmussen also discussed the new controversial euro-zone banking supervision regime, making it apparent that the ECB is willing to put it into effect. He stated: ‘The Commission will present its proposals on September 11 foreseeing a transfer of supervisory tasks to the ECB. The ECB is ready to accept this responsibility, but under certain conditions. The ECB has to be given all the instruments needed to carry out the tasks of bank supervision effectively. In particular that means access to all the necessary information, intervention rights and the right to close down non-viable banks. Without these minimum tools, the ECB will not take on the responsibility. The risk to the reputation of the institution would be too great.’ He repeated his point about the importance of intervention rights and dwelt on the supervisor having the power to close down poorly performing or questionable banks.

The regime has met with multiplying reservations and garnered detractors who feel it will give the ECB, as the main supervisory agent, too much power. Some have argued that such Frankfurt focused power could clash with the ECB’s monetary policy remit and create an unacceptable conflict of interests.

This morning data revealed that the recession in Spain was deeper than feared and in the last couple of hours the Spanish region of Catalonia has proclaimed that it will be requiring a bailout from the nation’s central state’s liquidity facility of over 5 billion euro’s. However, Spanish Prime Minister Mariano Rajoy stressed once more that, despite the worsening situation, a sovereign bailout would not be sought until the ECB have produced a clear, definitive set of attending conditions.

This news will no doubt add to the strain of Draghi’s weighty workload.