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No Action, Just More Words From the ECB

Based on Mario Draghi’s promises of last week, many predicted the European Central Bank (ECB) meeting yesterday would produce monetary policy to heal the eurozone.

No such luck.

Under intense pressure from investors and European leaders, the ECB President left the benchmark interest rate at a record-low 0.75%.

But Draghi did say new measures will be announced in the coming weeks:

“The Governing Council will consider further non-standard monetary policy measures according to what is required to repair monetary policy transmission. In the coming weeks we will design the appropriate modalities for such policy measures.”

The ECB says it’s ready to intervene in sovereign bond markets to lower borrowing costs for some of the weaker economies, possibly drawing up a mechanism to make outright purchases to stabilize stressed eurozone borrowing costs.

But Chris Scicluna from Daiwa Capital Markets says it isn’t just up to Draghi to sort the crisis:

“We think it’s really not for the ECB to save the euro, but that it is for the politicians to save the euro, and those in Germany and other core countries to step up and advance towards debt mutualization options which can allow countries in the periphery to raise money in the market and raise sufficient funds to avoid having to ultimately throw in the towel and leave the euro.”

European markets reversed previous gains after Draghi’s news conference, with Italian bonds trading higher and Spanish yields up seven basis points.

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