MARIO Draghi’s famous “whatever it takes” speech and other market-soothing interventions had a major effect on the cost of servicing debt for some of the Eurozone’s struggling finance ministries, according to research released yesterday.
A working paper from the European Central Bank (ECB) itself says that the announcements cut two percentage points from two-year Italian and Spanish bond yields, a common benchmark for the cost of issuing government debt.
The authors say the announcement of outright monetary transactions (OMT) in 2012 did not have the same effect for French and German yields, which had not increased in the same way during the Eurozone crisis.
The paper also argues that the announcement raised Spanish and Italian GDP by two and 1.5 per cent respectively.
Speaking in London during July 2012, Draghi said: “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough,” a move that is cited as a major turning point in the euro crisis.
The ECB governing board’s latest meeting comes this week, and little action is expected, despite the fact that inflation dropped to 0.4 per cent last month, the lowest level in five years.
“Draghi is also likely to downplay the surprise in inflation but discuss the range of risks surrounding the ECB’s economic outlook, arguing that the central bank is ready to act, should risks materialise,” said a Bank of America Merrill Lynch economist.
According to a petition of fund managers undertaken by the bank, only 39 per cent expect the ECB to launch a quantitative easing programme at any time, while 44 per cent think that it never will.