Draghi disappoints: Has the ECB damaged its credibility?
European Central Bank president Mario Draghi said today that the bank is planning to revamp its bond-buying programme.
However, the move has disappointed the markets – which were expecting much bolder measures given Draghi’s earlier insistence that the ECB was prepared “to do whatever it takes to preserve the euro”.
Commentators have suggested the lack of action could damage the ECB’s credibility - although others have pointed out that Draghi would have found it hard to deliver what optimists hoped for.
Schroders European economist Azad Zangana
“After building up market expectations to near euphoric levels, ECB president Mario Draghi failed to deliver the policy to back up his promises of doing “whatever it takes” to save the euro.
“Though at first glance Draghi appears to be announcing the start of quantitative easing, closer inspection of his opening statement and follow-up comments show that the ECB is merely considering the idea of creating a framework that could allow such action. Not a great deal of conviction in the statement.
“If the ECB does not follow up with some meaningful action in the near future, then there is a risk that markets lose all faith in Draghi and the governing council’s ability to tackle this crisis.”
Lombard Odier strategist Stephanie Kretz
“Monetary policy alone cannot solve the underlying structural debt issues underpinning this crisis. Draghi created unrealistic expectations among investors but failed to announce concrete measures significant enough to reassure investors - given the restraining scope of the ECB’s mandate.
“One unintended consequence might be that next time the ECB wants to calm markets, his words won’t carry the same effect.”
Rathbone Unit Trust Management fixed income director Bryn Jones
“The lack of tangible action has disappointed markets, but it was naive to assume anything less. Mario Draghi’s rhetoric last week was there to try and calm markets over the summer, while we wait for the German Bundesbank to ratify the bond-buying programmes.
“Regarding the mention of outright open market operations, the ECB still needs to clarify exactly how and what seniority the central bank will have. But the overall tone suggests that significant policy change lies ahead.”
Old Mutual European Equity fund manager Kevin Lilley
“It is important to put these events into context. The market is still significantly up on the last fortnight and in our view Draghi was never going to deliver what the optimists were expecting.
“The tone of the latest statement was enough to provide breathing space until the European Stability Mechanism is ratified and the Spanish independent bank audit nears conclusion in late September.”
HiFX director Jason Gaywood
“Markets were disappointed today as the ECB fell short of taking action to rescue Spain. Instead, Mario Draghi merely stated that the euro is irreversible.
“Short-term market action from here is likely to be negative with both European equities and the euro itself likely to show losses as traders confidence wanes in the wake of this indecision. The seemingly eternal fence sitting and rhetoric continues.”
Lombard Street Research economist Dario Perkins
“Draghi spectacularly under-delivered. The ECB ‘may’ do something, but the scheme he has in mind seems even more limited than its failed Securities Market Programme.
“Nothing here to suggest investors should abandon their fear of holding Mediterranean debt.”
Capital Economics senior European economist Jennifer McKeown
“President Draghi’s comments at Thursday’s ECB press conference were a blow to hopes that the bank would quickly make huge bond purchases to address the eurozone’s escalating debt crisis.
“The bank stressed that none of [the suggested measures] will happen until the troubled governments have applied to the EFSF to purchase their bonds. For now at least, both Spain and Italy are refusing to agree to the onerous austerity and structural reform conditions that this would entail, implying that any purchases could be months away.
“While the ECB has opened the door to greater support in future, its actions fell well short of Mr Draghi’s assertion last week that the bank would do “whatever it takes” to preserve the euro.”
IHS Global Insight chief UK and European economist Howard Archer
“There are some important steps forward here by the ECB, but the problem is that after Mr Draghi’s recent comments about the ECB doing whatever it takes to preserve the eurozone, markets were looking for more.
“There is disappointment that many details need to be fleshed out and likely concern that the eventual effectiveness of the ECB’s bond buying programme could be diluted by Bundesbank objections.”
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