EUROPEAN CENTRAL BANK chief Mario Draghi has vowed unconditional support for the beleaguered euro, sending markets into orbit as traders anticipated further action from the bank to shore up the eurozone.
In apparently unscripted comments in London, the normally reserved Draghi said his institution was “ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”
Stressing that the euro was “irreversible”, Draghi said that part of his bank’s remit was to keep sovereign debt levels under control when they hampered the proper functioning of interest rate policy.
Analysts saw Draghi’s comment as a hint that the ECB could soon reintroduce its hotly-contested programme of buying up the bonds of struggling eurozone countries. That programme has lay dormant for several months now.
As Spanish borrowing costs soared over 7 per cent earlier this week – the level that forced Ireland, Portugal and Greece into bailouts – the bank has come under increasing pressure to restart the programme.
And Draghi’s hints had an immediate impact on borrowing costs, with Spain’s shooting below the 7 per cent mark and Italian costs plummeting to just above 6 per cent.
The comments also sent stock markets into euphoric mood and boosted the euro on the foreign exchange markets after several days of painful declines amid fresh speculation the eurozone might implode, or Spain might need a bailout.
ABN Amro economist Nick Kounis said that Draghi had “opened the door for a restart of the central bank’s government bond purchase programme”, which has not been used since February.
“The crisis response looks likely to focus on direct intervention in the government bond market,” he added.
CMC Markets analyst Michael Hewson told AFP that Draghi’s remarks “suggest that the ECB may well do something about capping rising bond yields.”
Attention would now turn to Draghi’s monthly news conference in Frankfurt next Thursday “to see if he means what he says,” the analyst added.
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