“European Central Bank President Mario Draghi said his pledge to buy government bonds is helping to ensure that interest-rate cuts reach the parts of the euro-area economy that need them the most.
“Our measures gave breathing space from markets driven by panic, which were forcing the economy into a position where inappropriately high interest rates would make default a self-fulfilling prophecy,” Draghi said in a speech in London. “Today we are seeing some encouraging signs of tangible improvements in financial conditions. Spreads in sovereign and corporate debt markets have narrowed considerably.”
Since Draghi pledged last year to buy unlimited amounts of government bonds in exchange for countries signing up to economic reforms, conditions in euro-area financial markets have improved. Even though his so-called Outright Monetary Transactions program has yet to be used, bond yields in distressed countries such as Greece and Spain have dropped from euro-era records and banks’ reliance on ECB funding has declined, indicating confidence is returning.
The ECB has “started observing convincing signs that fragmentation on the funding side for banks has decreased greatly,” Draghi said last night. “And although bank lending to businesses and households remains anaemic, we are now seeing some signs of slight improvement on the lending side as well.”
