By Gideon Rachman
“Whatever it takes.” Mario Draghi’s declaration that he would save the euro could well go down as the most effective three-word statement by a Roman since Julius Caesar’s veni, vidi, vici.
By Gideon Rachman
Germany has surrendered and the euro is saved. That seems to be the markets’ interpretation of last week’s ruling by the German constitutional court on the European Central Bank’s “whatever it takes” policy to save the single currency. The judges’ ruling essentially boiled down to this: “We don’t like what the ECB is doing. We think it illegal. But only the European Court of Justice can strike it down.”
German Constitutional Court (Matthias Hangst/Getty Images)
We don’t like what the European Central Bank is doing – but if someone is going to drop a nuclear bomb on the eurozone, it won’t be us. This seems to be the main message in today’s judgment from Germany’s constitutional court on the ECB’s Outright Monetary Transactions programme.
The OMT is an initiative aimed at saving the eurozone with large-scale ECB purchases of the bonds of governments vulnerable on financial markets, in return for a commitment to deep-seated economic reforms. Germany’s Bundesbank and much of the German public have never warmed to the OMT – even though the programme has never actually been used and, some experts think, never will be.
So the German court’s judgment will come as a relief to Mario Draghi, the ECB president, and all those who hold that the OMT, unveiled in August and September 2012, is the single most important reason why Europe’s monetary union no longer appears in mortal danger. But mixed with this relief will be a feeling that the German court’s judgement is not entirely helpful – and that some of its arguments are not particularly well-founded. Read more
The Italian dog that did not bark is one of the great untold market stories of the past month. The yield on Rome’s 10-year bonds is around 4.3 per cent, a level not seen since the end of January.
Chart: Italy’s 10-year bond yield (black line) over the past five years; blue line shows the yield on the German 10-year bund
(Chart courtesy Reuters)
The spread with the Bund, which has obsessed Italians since the market panic at the end of 2011, has narrowed to just above 300 basis points. It almost looks as if February’s inconclusive election and the accompanying political uncertainty do not matter. This is puzzling, so here are a few tentative explanations:
1) Mario Draghi’s magic. The pledge by the president of the European Central Bank last summer to do “whatever it takes” to save the euro is the single most important explanation for the relative quiet on Italy’s bond market. The Outright Monetary Transactions scheme, whereby the ECB will purchase unlimited quantities of debt of countries in difficulty, has so far proven a remarkably resilient firewall. Read more
Here are the pieces that got us chatting this morning:
Here’s what we’ve been chatting about today:
Still super, Mario?
By Tom Burgis and Esther Bintliff on the news desk in London with contributions from our correspondents around the world. All times GMT.
Another big day for “Super” Mario Draghi, the European Central Bank president. 800 banks borrowed a total of €529bn under the ECB’s liquidity programme — more than last time. We were watching too for ripples from Dublin’s decision to hold a referendum on the eurozone fiscal pact.
19.20: We’re going to wrap up the live blog for today, so here’s a final round-up of today’s events:
- In round two of the European Central Bank’s Long-Term Refinancing Operation (or LTRO), 800 European banks borrowed €529.5bn
- A larger number of banks borrowed money than last time (when 523 banks borrowed €489bn)
- About €310bn of net new liquidity was added to the system
- More than two thirds of the volume was taken up by banks in three countries, thought to be Spain, Italy and France. Among the biggest takers of funds was Italy’s Intesa SanPaolo, with €24bn, double the amount it took in the December operation. UK bank Lloyds is believed to have been the biggest non-eurozone taker of funds, receiving €11.4bn.
- In the markets, risk assets were initially firm on the back of the LTRO figures, but later fell back as Fed chairman Ben Bernanke spoke to Congress and dampened speculation that further monetary easing was on its way
- On the plus side, US growth data for the fourth quarter was revised upwards, from 2.8 per cent to 3 per cent
- The FT’s Brussels bureau chief Peter Spiegel got a copy of the draft conclusions from the EU council summit that begins tomorrow
- EU Commission president Barroso met with Greek prime minister Lucas Papademos – see our 17.58 update