Seven hours from now, we will have the press release from the ECB board meeting, and then Draghi’s press conference. The markets wait with bated breath.
My expectation is that the ECB will announce three things:
1. A cut in the overnight rate from 0.75% to 0.50%.
2. Another LTRO (cheap money for three years) for the banks in the range of EUR 400-500B.
3. Revival of the SMP (bond buying) for “monetary reasons” in an unstated amount.
Another tranche of LTRO would be very helpful for Spain, coupled with the simultaneous EFSF recapitalization of its banks so that they are “solvent” for ECB lending purposes. That way, instead of the EFSF having to bail out Spain, the ECB can do it via the banks, which will use the funds to buy government bonds. The government can use the proceeds to pay its bills and fund the regions. This could keep Spain afloat pending the eventual startup of the ESM.
Reviving the SMP could have substantial influence on market sentiment as it hints at an eventual ECB rescue of Spain and Italy. But it will be purely symbolic.