Draghi: ECB will do 'whatever it takes' to save euro

26 July 2012 | By Gary Jackson

European Central Bank president Mario Draghi has pledged to do “whatever it takes” to prevent the eurozone from collapsing under the weight of soaring government borrowing costs.

Recent days have seen the yields on Spanish government debt reach new highs as speculation mounted that it will be forced to follow Ireland, Greece and Portugal in asking for a bailout from the international community.

Speaking at an investment conference in London, Draghi said: “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.

“Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough.”

The yield on 10-year generic Spanish government bonds reached a record 7.62 per cent earlier in the week, Bloomberg shows, before falling back. It currently stands at 6.93 per cent, as of 1601 BST (26 July), which is close to the level considered to be unsustainable in the long run.

Concerns over the health of Spain spiked after Valencia’s regional government said it would tap the recently-created €18bn emergency-loan fund to help cope with its heavy debt. Murcia followed in asking for aid while Castilla-La-Mancha, Catalonia, Andalucia, the Canaries and the Balearic Islands are expected to seek funding.

The markets rose on the back of Draghi’s comments. According to Bloomberg, the Euro Stoxx 50 index was up 79.14 points to 2,238.23 and the FTSE 100 surged 73.92 points to 5,572.24 as of 1551 BST, while the euro rose against the dollar.

HiFX premier account manager Andy Scott says: “The gains may prove short lived though and could simply be short covering as the central bank still seem resistant to calls from Spain to take action to drive down their borrowing costs by buying government bonds.

“Without action from politicians on closer integration of the 17 member countries or further policy steps from the ECB, investors are unlikely to be rushing back into the Euro and certain countries debt.”

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