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ECB chief Mario Draghi disappoints financial markets with bond buying plan


Traders work on the floor of the New York Stock Exchange on August 2, 2012 in New York City. Stocks fell sharply today after European Central Bank President Mario Draghi failed to announce plans to help resolve Europe's debt crisis.


Spencer Platt

European Central Bank President Mario Draghi’s wishy-washy announcement today has tarnished his credibility, at least in the eyes of investors.

More from GlobalPost: Mario Draghi: ECB is working on bond plan

Only last week Draghi promised to do “whatever it takes to preserve the euro” and reduce crippling borrowing costs of Italy and Spain.

The comments were Draghi’s boldest yet and global financial markets rejoiced: shares rallied, borrowing costs for heavily indebted countries fell and the euro strengthened.

Finally, the ECB – the European equivalent of the US Federal Reserve – was stepping up to the plate.

Or so everyone thought.

Draghi watered down these remarks today by saying the ECB might start buying government bonds. The details of the plan would be worked out in the coming weeks, suggesting the much-needed intervention is unlikely to come before September. 

And the ECB’s support is contingent on European governments using the euro zone’s bail-out funds to buy bonds.

That would require a country such as Spain to lodge a formal request for financial aid and so far it has shown no willingness to do so.

Not good enough, said investors, who were expecting Draghi to implement more forceful remedies sooner rather than later.

Markets responded swiftly: yields on Spanish and Italian bonds rose, global equity markets plunged and the euro fell.

"It is quite disappointing ... There is a lack of any action so he has basically passed the buck back on to politicians," Loan Smith, a strategist at Knight Capital, told Reuters.

US consultancy High Frequency Economics told its clients that traders and investors “who expected immediate action are, and should be, disappointed,” Bloomberg reported.

More from GlobalPost: Barroso in Greece for debt talks, Draghi committed to preserving euro, and Citibank gives ominous prediction







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