The ECB wants to end the ABS-buying program but it's scared of sending the wrong message
There is something pitiful about a central bank that allows itself to be bullied by markets.
Certainly officials make a misstep from time to time or say the wrong words and need to backtrack but you have to have confidence in your communication.
The latest leak from the ECB is that they want to end the asset-backed securities purchase program but are afraid of sending the wrong message. It really shouldn't be that hard. The program was a failure and they're canceling it.
The idea at the outset was that the ECB wanted to create an ABS market in Europe like the one in the US. Securitization would increase lending. The ECB would pledge to buy some of the bonds and that would help to foster a market.
It didn't work. The ECB has bought 24 billion in ABS since it was launched in Nov 2014 and it has basically run out of things to buy. Hopes to grow the market were dashed by regulators, who clamped down. It's now a 34% smaller market than when they started.
So it's a failure, move on.
The decision function of the ECB needs to be clear. They need to decide to do what's best and worry about the communication later. You can't be worried about doing the right thing because markets might get it wrong. Deal with the volatility, markets will sort it out.
