Posted by AzBlueMeanie:
Last week, analysts waxed optimistic about the crisis in Europe after Mario Draghi, the continent’s powerful central banker, said he’d do “whatever it takes” to save the euro from collapse.
That was then, this is now. Brad Pliumer writes at Ezra Klein's WonkBlog, Did Germany just stop Draghi from bailing out Europe?:
But now it’s less clear whether Draghi will follow through on his pledge, after all. On Thursday, at the conclusion of the European Central Bank’s August meeting, Draghi issued a new statement clarifying what he meant. No, he wouldn’t be buying up Spanish and Italian bonds right now in order to bail out those troubled countries, as many people were speculating. Instead, the ECB “may consider” doing so at a later date. Possibly. Here’s the key part of the statement[.]
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Short version: Yes, it’s worrisome that borrowing costs for Spain and Italy are soaring. And the governments of Europe should press ahead with finalizing their new bailout fund in order to stem the panic. One problem here is that the two European bailout funds — the European Financial Stability Facility and its yet-to-be-approved successor, the European Stability Mechanism — don’t have unlimited firepower the way the central bank does. (Spain and Italy have also been reluctant to seek help from the existing fund, since creditor nations like Germany could demand further austerity and structural reforms as the price of aid.)
So, Draghi adds, the central bank “may consider” stepping in and helping out in the future to reduce excessive borrowing costs for Spain and Italy. But there are still some technical kinks to work out, and the European Central Bank needs to “design the appropriate modalities for such policy measures.” Action could be months away.
What’s the hold up? Germany, perhaps. During a press conference afterwards, ECB vice-president Vítor Constâncio noted that only one member of the ECB was adamantly opposed to bond purchases. This seems to be a reference to Germany’s Bundesbank, which had vigorously opposed a central-bank bailout of Spain and Italy. And even though the Bundesbank doesn’t have a direct veto over ECB actions, it seems Germany, as the richest country in the euro zone, still has plenty of sway.
In any case, it appears that quite a few people were expecting a lot more than “appropriate modalities” and hints of future action.
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Update: For a more optimistic counter to financial markets, read Joseph Cotterill’s breakdown of Draghi’s statement over at FT Alphaville.