The European Central Bank appears to have disappointed just about everyone on Thursday morning. Just last week, ECB President Mario Draghi ignited a global stock market rally after he said the central bank would do “whatever it takes” to preserve the embattled euro. Markets took that to mean that the ECB was about to embark upon an aggressive round of government bond-buying.
Now, this tough talk has been watered down. Mr. Draghi even commented that he was surprised by the attention his remarks received last week. The result: Stocks fell on Thursday and the yields on Spanish and Italian government bonds moved higher.
The ECB did say that it stood ready to intervene in sovereign bond markets, but the intervention didn’t look imminent: Mr. Draghi said that Germany still has reservations about central bank bond-buying activities and also that governments would have to apply to European rescue funds first.
“The ECB cannot replace governments,” he said.
The reactions from economists and market watchers was severe. A sampling:
Benjamin Reitzes, BMO Nesbitt Burns: “The ECB did the least amount possible in saying it could potentially buy sovereign debt only under certain pre-conditions. With inflation expected to fall below 2 per cent in 2013 and downside growth risks, the ECB’s lack of bold action to boost the crisis-wracked region borders on irresponsible.”
Paul Krugman, New York Times: “Oh, my. No concrete action from the ECB, just vague statements of intent. ... It looks as if European leaders have once again failed to rise to the occasion – even as all indicators are that the ongoing euro area recession is rapidly deepening.”
Carl Weinberg, High Frequency Economics: “Once again, we have no commitment to action from the ECB, and no execution of promises previously made. Nothing seems set to happen now. ... More scolding of governments, but no ECB action, is the bottom line.”
Craig Erlam, Alpari (U.K.): “Mario Draghi caused a stir in the markets following last week’s comments. In many ways his comments today go against his statement last week. What he said last week was they’ll do whatever it takes, today it was more like they’ll do whatever the Bundesbank allows them to. Draghi looked like a man defeated in the press conference, which came shortly after his meeting with the Jens Weidmann, head of the Bundesbank. Today’s conference really has shown who is king.”