“European Central Bank President Mario Draghi isn’t racing to the rescue of Europe’s banks or economy this time.
Almost a year since his promise to do “whatever it takes” to protect the euro soothed investors, and a month since cutting interest rates, Draghi signalled yesterday that governments, not the ECB, should do more to fight recession and boost credit to businesses in cash-strapped countries such as Spain.
As he predicted a resumption of growth by the end of the year, Draghi’s maintenance of the status quo sent bonds falling and the euro rising as investors questioned the ECB’s crisis-fighting resolve, which previously reinforced its president’s “Super Mario” nickname. Yields on Spanish and Italian 10-year bonds jumped yesterday to the most in six weeks, while German two-year borrowing costs climbed to the highest since February. Markets rebounded today with rates falling across the region.
“Investors see ECB talk for what it is, a fig leaf,” said Ciaran O’Hagan, head of European rates strategy at Societe Generale SA in Paris. “Draghi mentioned many possible measures, only to conclude that they are too hard to introduce.”
If the economy improves in the second half of the year, the ECB may refrain from further action as “the easy instruments have all been used,” Austrian central bank governor Ewald Nowotny said today.
