Despite High Expectations, Draghi Doesn't Deliver

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Europe Update: Draghi Disappoints

After an unusually strong buildup, ECB President Mario Draghi failed to deliver anything of substance from the ECB at Thursday’s press conference.

Draghi told the press Thursday that the ECB may undertake outright open market operations and that those operations will be of adequate size. In English, this means that the ECB is planning to buy bonds on the open market – after all the details have been worked out.

Reports indicate that the Draghi plan is for the ECB to buy sovereign debt on the open/secondary market and for the EU’s bailout funds (EFSF and ESM) to buy bonds directly from the countries themselves. The overall goal to drive down rates.

Draghi added that the ECB may take further non-standard measures. He noted that the central bank will discuss design modalities in the coming weeks.

Finally, Draghi also pointed out that the ECB will look to address investor concerns over seniority issues.

Draghi also said that it is up to European governments to decide on the legality of the ESM holding a banking license, which would allow the bailout fund to access funds directly from the ECB. He added that the current design of the ESM does not allow it as a counterparty (this is something that German officials have also pointed out). Recall that countries such as Germany, Finland and the Netherlands are opposed to granting the ESM a banking license.

The market’s immediate response has been one of disappointment as stock futures in the U.S. have moved from +4 on the S&P 500 to down more than 10. European bourses have suffered as well with the Spanish market moving from +1% to down nearly -4%.

Had Draghi not told the markets that the ECB’s upcoming action “will be enough” to drive rates down and put the sovereign debt crisis on hold, Thursday’s comments would likely have been enough. However, with expectations running high, investors are obviously disappointed that EU leaders have once again failed to deliver.

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Other stories on Europe to review:

• ECB Leaves Rates Unchanged
  
• Eurozone PMI's Confirm Ongoing Contraction
  
• ECB To Do 'Whatever It Takes' to Save Euro
  
• Spain Enters Recession in Q2
  
• Industrial Production Down -2.8%
  
• EU to Jumpstart Loans to Spanish Banks
  
• Germany's Industrial Production Up in June
  
• Bank of England Launches 3rd Round of QE
  
• EU Leaders Announce Measures To Ease Crisis

 

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