“European leaders lulled into complacency by Mario Draghi’s pledge to buy their bonds may be stumbling toward the next euro-region emergency.
Policy makers are squandering the decline in borrowing costs triggered by the European Central Bank president’s commitment to defend the single currency, leaving the 17-nation bloc’s economy and financial systems vulnerable, according to economists Charles Wyplosz and Paul De Grauwe.
“I don’t see how we avoid having another acute crisis now that governments are so pleased with themselves,” Wyplosz, director of the International Center for Money and Banking Studies in Geneva, said in a telephone interview. “The wave of optimism we had was unjustified. Key elements of the crisis aren’t being dealt with.”
Concern that political turbulence would deepen backsliding has rattled markets. Ten-year bond yields in Spain and Italy rose this week to their highest of 2013 as Spanish Premier Mariano Rajoy faced opposition calls to resign amid contested reports of corruption in his party and Italy’s Silvio Berlusconi narrowed the front-runner’s lead before elections in three weeks.
Italian government bonds slid today with the yield on 10- year notes rising 1 basis point to 4.47 percent at 12:56 p.m. in Rome. Spain’s benchmark stock index fell 0.3 percent while the country’s 10-year bonds rose.
“The crisis has never been over,” said de Grauwe, a professor at the London School of Economics and a two-time candidate for a seat on the ECB’s Executive Board. “If this reversal goes on we’ll get a new stage and the ECB will have to act or it will lose credibility.” …”