ECB's Draghi obliged to disappoint as Germany holds out

An activist of the occupy movement poses with a fake euro banknote in Frankfurt, home of the European Central Bank, 2 August Anti-capitalist protesters demonstrated against the euro in Frankfurt on Thursday

In the end, perhaps, it was inevitable that Mario Draghi would disappoint. It was never clear, when he said that he would do "whatever it takes to preserve the euro", that he had a plan in place.

What we got were hopes and promises. The euro was "irreversible", he insisted. That, in the world where economics meets politics, can only be a wish. At one point the head of the European Central Bank (ECB) said "it [the euro] stays. It stays. It stays." The markets wanted much more than "don't bet against the euro".

So no immediate action. More a strong hint that, once the right mechanism is in place, the bank will buy the bonds of Spain and Italy in the "coming weeks", but not just yet.

That fell short of a commitment to intervene immediately and any action appears dependent on European governments drawing on their bailout fund as well, but Spain and Italy have shown no inclination to call on the current bailout fund, the EFSF, to buy their bonds.

The hope seemed to be that the promise of future action would deter investors from shunning Italian and Spanish debt. Mr Draghi said the ECB would consider other emergency measures in the weeks to come. But nothing is a done deal.

ECB chief Mario Draghi addresses the media during a news conference in Frankfurt, 2 August Mr Draghi gave hints rather than announcing specific action

The Bundesbank was opposed to the ECB once again buying government bonds. Perhaps the most important message from today's meeting was that German objections have clearly not been overcome.

Tom Rogers from Ernst and Young said that "the setting up of committees to examine how the ECB could bring down borrowing costs, while remaining in the ECB remit, is probably the best that could be achieved".

The markets were disappointed. The borrowing costs for Spain and Italy went up. Spain's borrowing costs were back above 7%. Others, however, believed a marker had been put down that signalled a change of policy down the road.

The interest rate was left unchanged.

Italy's Prime Minister Mario Monti had this week been on a kind of momentum tour, trying to stoke up pressure on the Germans to fall in behind Mario Draghi's promise to act. He spied light at the end of the tunnel for the eurozone. His optimism was misplaced.

And even if Mario Draghi had intervened in the markets immediately it would only have bought time. For Spain and Greece, and probably Italy, can only be saved if their debt is lowered and growth returns. For the moment these countries are in recession, with the problems deepening.

The challenge is not just about keeping down borrowing costs but how to revive economies that increasingly look locked into a cycle of decline.

Gavin Hewitt Article written by Gavin Hewitt Gavin Hewitt Europe editor

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  • rate this

    Comment number 162.

    159, we are a fallible but in a country that allows gun ownership with a gun laden entertainment scene those people that are the most mentally untuned are more likely to do crazy things due to no control of weapons. I like that side of our nannish state we try to foresee bad things and how to lower there risk of occurring.

    Guns should never be allowed for personal use anywhere.

  • rate this

    Comment number 161.

    Oaktree: Whites are superior ?

    No whites are not superior to other races; we're all equally human

    You guys just don't really see whats going on

    Just like our media didn't tell us Viktoria Komkova's score at end
    They just said Gabby won
    even tho Viktoria did not have a single mistake

    Many white people are turning to Republicans
    cause' thats all we got left

  • rate this

    Comment number 160.

    157 if the Spanish have done that then shows the EU catching regulations are failed, why bother if you can globe trot.

    That's why national governments should be allowed to regulate these issues. Also they should only be allowed to fish in there own national waters.

    The EU has good intentions but not much thought goes into the implemention.

  • rate this

    Comment number 159.

    #157 dmr

    -- this is ridiculous

    #155 Lucy J

    -- Whites are superior ?

    --Or only Republicans --because they are white ?

    --was not the latest massacre caused by a white ?

    -- I miss your point for the link -- America is violent ?

  • rate this

    Comment number 158.

    Oaktree: I have never heard her ┬┤attacking┬┤ Afro-Americans, Native Americans or Hispanic Americans

    I guess your comment's honesty just really struck me
    Thats exactly the way it feels like to be a white American right now
    like everyone in the entire world is against you

    Its a whole movement

    Thats why I wrote about Dem+Repub b/c thats the way America is splitting into two right now


Comments 5 of 162



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