European Central Bank Chief Offers No 'Bazooka' for Markets

European Central Bank President Mario Draghi has almost completely closed-off the prospect of aggressive bond buying from the European Central Bank or the prospect of "quantitative easing" .

Mario Draghi
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Mario Draghi

Not only did he say that he was surprised that some media outlets had inferred from his comments to the European Parliament last week that "other elements" might follow a sequence of events from Europe's politicians, he said that there was "no high probability of deflation" in the Euro Zone.

The risks of deflation might have given him legal cover for such an action.

Draghi added that the ECBwould not circumvent Article 123, which prohibits it from supporting individual member states.

Despite the very important move to offer three-year loans to Euro Zone banks for the first time, without penalty interest rates, and loosening the rules for collateral that they have to post in return, the mood of the ECB is far from uniformly dovish.

Draghi revealed that Thursday's widely expected 25 basis points cut was not unanimous—indicating that some members of the Governing Council thought it was too soon to cut again after last month's similar move.

The new head of the ECB also went on to better define the "fiscal compact" that he wanted to see from politicians. Draghi wants primary legislation that would "automatically" limit deficits and debt "ex ante"—in other words before they can even come into being rather than after the fact.

Yet, France and Germany are talking about essentially political votes to penalize member states after they transgress, and it's not clear that under many member states constitutions the suggested addition of "balanced budget amendments" and "fiscal brakes" would necessarily bind politicians.

Draghi's announcement that the ECB would continue to "sterilize" it's buying of sovereign debt in the secondary markets also indicates that they do not intend to massively expand money supply to the Euro Zone at a time when their new projections indicate a rising risk of recession for the bloc.

In short, there will be no bazooka for market bulls from the ECB in the foreseeable future.