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ECB to the rescue of Spain and Italy and avoid collapse of Euro zone

Thursday, July 26th 2012 - 19:51 UTC
Full article 3 comments
Draghi: will do whatever it takes to preserve the Euro and “we have whatever it takes” Draghi: will do whatever it takes to preserve the Euro and “we have whatever it takes”

European Central Bank President Mario Draghi pledged on Thursday to do whatever was necessary to protect the Euro zone from collapse, including acting to lower unreasonably high government borrowing costs.

“Within our mandate, the ECB is ready to do whatever it takes to preserve the Euro. And believe me, it will be enough,” he told an investment conference in London.

”To the extent that the size of the sovereign premia (borrowing costs) hampers the functioning of the monetary policy transmission channels, they come within our mandate.“

The comments are Draghi's boldest to date and suggest the ECB is ready to row back into the debt crisis to defend Italy and Spain whose borrowing costs have spiralled to unsustainable levels.

The Euro jumped while German bond futures, typically favoured by risk adverse investors, turned negative in response.

The ECB has kept its sovereign bond-buying program mothballed for months and internal opposition to reviving it is stiff so focus will turn to what else the ECB could do.

Economists think it could be forced to buy bonds again, or alternatively, support struggling euro zone countries via the back door.

On Wednesday, ECB policymaker Ewald Nowotny broke ranks with his colleagues, saying that giving Europe's permanent rescue fund a banking licence so that it could draw on central bank funds had merits. Draghi and others have previously rejected that option.

Alternatively, the bank could act as the Federal Reserve and Bank of England have, and opt for straight quantitative easing -- money-printing by another name.

Draghi said at the weekend that the ECB had ”no taboos“ over what it could or could not do. His fears about the failing transmission of monetary policy chime with similar warnings from Bank of France head Christian Noyer in recent weeks.

French Finance Minister Pierre Moscovici said Draghi's remarks on government bond yields were ”very positive“.

Draghi added that the ECB did not want to do things that should be done by governments. He refused to speculate on the chance of a country leaving the euro but said that the single currency was ”irreversible”.

Categories: Economy, International.

Top Comments

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  • Ozgood

    I simply cannot understand why Spain and Italy find themselves in such dire straits. Both are industrialised first world countries. I realise that Greece lived well beyond its means, the rich did not pay taxes and Goldman Sachs obfuscated the debts of Greece before its entry into the Euro Zone.

    Why are there so many unemployed youth in Spain and Italy? Can someone please explain?

    Jul 27th, 2012 - 08:57 am 0
  • Ken Ridge

    From what I have read Spains problems are more to do with a crash in the property market and unpaid mortgages, over use/abuse of private credit and failure to repay. Rather than government overspending/misshandling.

    Italy on the other hand is generally due to overspending. You might find this interesting...

    Unemployment is then a result of recession.

    Jul 27th, 2012 - 11:20 am 0
  • British_Kirchnerist

    If he's really willing to do “whatever” it takes to avoid disaster, that should include abandoning Merkel and co's disastrous austerity politics

    Aug 01st, 2012 - 07:15 pm 0
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