European Central Bank President Mario Draghi failed to announce any definitive measures to address concerns about the burgeoning sovereign debt crisis in his latest post-decision press conference.
The ECB Governing Council also decided to leave interest rates unchanged at 0.75 per cent.
Analysts expected Draghi’s speech to be far more exciting, for if he was ready to announce new, non-standard measures from the ECB he would have done it in that press conference. Investors interpreted recent statements by the ECB chief to at least signal that the central bank would restart secondary market purchases of Italian and Spanish bonds, meant to push borrowing costs for both countries to more sustainable levels. That would hold these countries over until EU leaders could decide on more permanent measures, likely in September.
While Draghi implied that such measures could be in the works, he instituted an important precondition: EU leaders must address concerns about official sector seniority in sovereign debt holdings (in other words, the implicit guarantee that the public sector will not take losses in the case of a debt restructuring) and they must decide how to use the EFSF/ESM bailout funds to purchase sovereign bonds.
This is a disappointment for markets, which expected the ECB to announce something more concrete today. European leaders will likely drag their feet on such tasks based on their dismal crisis track record so far. Regardless of Draghi’s assurances that developments were forthcoming in weeks, investors will doubt that EU leadership will deliver.
Markets reacted strongly to this lack of action, falling sharply in Europe. Yields on Spanish and Italian bonds have also spiked since the press conference began.
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