EU: Markets crumble as Draghi bond plan deemed too vague

The Telegraph ^ | 8/2/2012 | Ambrose Evans-Pritchard

[bruinbirdman]

The European Central Bank has opened the door to a blitz of bond purchases and fully-fledged quantitative easing in a radical shift of policy, but only once Europe’s leaders have activated their own rescue machinery.

Mario Draghi, the ECB’s president, said the bank may “undertake outright open market operations” to cap borrowing costs in those countries pushing through reforms. Intervention will be of “adequate size” to fulfil the task.

“These are very strong words,” said Julian Callow from Barclays Capital. “Draghi has made it clear that the ECB is preparing to buy Spanish and Italian bonds on a much bigger scale. This is the thin end of the wedge for QE and marks a turning point in the crisis.”

Market opinion was deeply divided, with critics lining up to berate Mr Draghi for failing to deliver on last week’s pledge to do “whatever it takes” to save the euro.

“This could accelerate the crisis,” Jacques Cailloux from Nomura said. “We have a bond crash in Spain and Italy, and the worst financial crisis in European history and all we get from the ECB is 'guidance’. It is clear that they are not yet ready to do anything,” he said.

The euro plummeted below €1.22 against the dollar on the lack of concrete action. The IBEX stock index in Madrid plunged 5.2pc, while the MIB dropped 4.6pc in Milan.

Yields on 10-year Spanish bonds punched back above 7pc, though two-year yields fell after Mr Draghi said buying would be concentrated on the “shorter part of the yield curve”.

Mr Draghi said three teams of ECB experts would draw up plans over the coming weeks for potentially “unlimited” and “unsterilised” intervention in the bond markets, implying a net injection of stimulus to shore up the economy as the headwinds of recession gather

[DuncanWaring]

“Draghi has made it clear that the ECB is preparing to buy Spanish and Italian bonds on a much bigger scale.

For how long?

Until their governments quit spending more than they collect in taxes?

Wouldn't that be, like, "forever"?

[the invisib1e hand]

are they holding seances calling for the antiChrist yet?

[SeminoleCounty]

As long as morons keep pushing failed free trade and globalist policies, you keep getting stupid nonsense like this

Its time for the EU to implode. The longer they keep the charade going, the uglier the fall will be

And, Globalist bankers and financiers are learning a very huge lesson: You can’t finance anything when you run out of other people’s money

[BfloGuy]

As long as morons keep pushing failed free trade and globalist policies, you keep getting stupid nonsense like this

Oh, what nonsense. Free trade has nothing whatsoever to do with Europe's problems. For starters, trade with the EU isn't very free. The EU's problems are due entirely to government deficit-spending.

Germany's part of Europe. If Europe's problems are due to "failed free trade and globalist policies," then why is Germany still so prosperous? Ditch the "free trade" bugaboo and focus on the real problems.

[bruinbirdman]

" . . . bail-out funds (the EFSF and ESM), which requires Spain – and perhaps Italy – to request a formal rescue and sign a memorandum ceding control over fiscal policy."

yitbos