Wednesday, August 1, 2012
Mario Draghi’s Guns of August
August 1, 2012
August has been a dangerous month in European history, but this year it could be the turning point for the eurozone – and perhaps for the world economy. On July 26, Mario Draghi, President of the European Central Bank, declared that his institution would do “whatever it takes” to preserve the euro, and added: “Believe me, it will be enough.”
Draghi’s strong – indeed, unprecedented – statement was widely interpreted as signaling that the ECB would soon revive its bond-purchase program, focusing on Spanish debt in particular. Stock markets around the world soared. Jens Weidemann of the Bundesbank immediately expressed reservations, but the next day German Chancellor Angela Merkel and French President François Hollande issued a joint statement expressing their determination “to do everything in order to protect the eurozone.”
I recently argued that the ECB, working with the nascent European Stability Mechanism (ESM), was the only institution that could save the eurozone. It could do so by buying Italian and Spanish bonds in the secondary market with the pre-announced intention of keeping their sovereign interest rates below a certain threshold for a certain time.
Posted by Yulie Foka-Kavalieraki at 3:30 PM