Tuesday 20 March 2018

Draghi will do 'whatever it takes' to save eurozone from collapse

ECB President Mario Draghi speaking at the European Parliament.
ECB President Mario Draghi speaking at the European Parliament.

David Milliken and Olesya Dmitracova

Euro jumps as comments suggest ECB will row in to tackle ongoing debt crisis

European Central Bank president Mario Draghi pledged yesterday to do whatever was necessary to protect the eurozone from collapse, including acting to lower unreasonably high government borrowing costs.

"Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough," he told an investment conference in London.

"To the extent that the size of the sovereign premia (borrowing costs) hamper the functioning of the monetary policy transmission channels, they come within our mandate."

The comments are Mr Draghi's boldest to date and suggest the ECB is ready to row back into the debt crisis to defend Italy and Spain, whose borrowing costs have spiralled to unsustainable levels.


The euro jumped, while German bond futures, typically favoured by risk-averse investors, turned negative.

The ECB has kept its sovereign bond-buying programme mothballed for months and internal opposition to reviving it is stiff, so focus will turn to what else the ECB could do.

Economists think it could be forced to buy bonds again, or alternatively, support struggling eurozone countries via the back door.

On Wednesday, ECB policymaker Ewald Nowotny broke ranks with his colleagues, saying that giving Europe's permanent rescue fund a banking licence had merits.

Mr Draghi and others have previously rejected that option.

Alternatively, the bank could act as the Federal Reserve and Bank of England have and opt for quantitative easing -- money-printing by another name.

"The comments about high government bond yields disrupting ECB monetary policy transmission were interesting, in so far as they hinted at a possible attempt to circumvent the restrictions on outright government bond purchases," said Marc Ostwald, Strategist at Monument Securities.

"Of course, it remains to be see whether Herr Weidmann, Herr Asmussen, Frau Merkel and Herr Schaeuble would agree with his assessment," he said, referring to the senior members of the German government and its representatives at the ECB. Mr Draghi said at the weekend that the ECB had "no taboos" over what it could or could not do.

His fears about the failing transmission of monetary policy chime with similar warnings from Bank of France head Christian Noyer in recent weeks. French Finance Minister Pierre Moscovici said Mr Draghi's remarks on government bond yields were "very positive".

Mr Draghi said the ECB did not want to do things that should be done by governments. He refused to speculate on the chance of a country leaving the euro but said that the single currency was "irreversible". (Reuters)

Irish Independent

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