Mario Draghi has just finished giving his press conference in Frankfurt about what the European Central Bank is going to do as part of its ‘whatever it takes’ crusade to save the euro. The ECB chief described the single currency as ‘irreversible’, and perhaps it is his seemingly incontrovertible belief in its capacity to survive that led to such a lacklustre announcement.
Remember that all eyes had been on Draghi since he said this last week: ‘Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.’ He had pointed to the rise in bond yields over the previous few days, and used a series of codewords which traders recognised as a sign the ECB was going to make an intervention in the bond markets.
So what was this big announcement that the eurozone had been waiting for? In short, Draghi announced today that the ECB ‘may’ buy bonds directly, which is what the markets had been gearing up for for the past seven days. The bank’s governing council will also consider other exceptional measures. The problem is that investors had been hoping that ‘whatever it takes to save the euro’ would mean something more concrete than ‘may’ and a promise to outline the measures involved over the next few weeks. Draghi said the bond-buying programme was ‘endorsed by all the governing council members with one exception’. It’s a pretty safe bet that the member that objected was the Bundesbank.
He also said countries would have to go to the EFSF first and that ‘the ECB cannot replace governments’. This means that Spain will have to request a bailout, which it has so far refused to do.
The Spanish IBEX is now down 5 per cent following Draghi’s statement, and this chart of Italian bond yields by Sky’s Ed Conway is perhaps the most dramatic illustration of just how far short the ECB has fallen of expectations for today at least. The market had been looking something to reassure it right now, not later, and the problem is that some of the changes that were the subject of such feverish speculation, such as turning the ESM into a bank, require legal changes. The more important question than the initial market reaction, though, is whether the details the ECB releases in the next few weeks reveal action that will secure a lasting stability. Currently, that eurozone crisis can is still rolling down the road.