Mr Draghi disagrees with the world

There had been expectations that some much-needed change in its interest rates policy would come out of the recent Governing Council meeting of the European Central Bank in Frankfurt. After Cyprus’ bailout, credit has become more expensive for eurozone lenders and doubts loom again over the ability of Europe to re-activate the economy and asset value recovery–not to mention the renewed alarms because of the need for more provisions in many euro states.

Everyone’s eyes were on Mario Draghi, the president of the ECB: would he finally U-turn or would he sit as a quiet spectator while the US Federal Reserve and the Bank of Japan intervene with massive liquidity injections against the credit crunch?

In Tokyo, indeed, the central bank is determined to put an end to the deflation the country has already been in for 15 years. Japan has decided that austerity won’t do, even having a 9 percent public deficit and a ratio of 245 percent of debt per GDP.

But despite the anxious atmosphere for monetary expansion plans, the ECB preferred to wait, once more. The main interest rate stays at 0.75 percent.

Draghi talked the talk about worrying signals of a wounded European economy, and how Italy and Spain suffer credit market access restrictions, which means their households and businesses remain under severe stress. Draghi tried to relive the tension he sparked in the past about the central bank being “ready to do whatever it takes”: the discussions in the meeting had been intense, he explained, the ECB directors acknowledge conventional measures aren’t working, and the Bank of England, the Fed and Bank of Japan have gone in the opposite direction to that of Brussels and Berlin.

Analysts and journalists were left without much to report, as usual, ultimately making themselves busy with random interpretations of Draghi’s speech pauses, his body language, his mechanical smile. If the eurozone’s economic stats bring further recessionary moods, the ECB could print money and help credit flows run towards small and medium size companies. Or not. Draghi could even let the ECB to accept eurozone bank’s loans to SMEs as collateral to get loans from the ECB itself. Or not.

So yes, it will be more uncertainty until the German elections in September.

About the Author

Carlos Díaz Guell
Editor at and, Carlos began his career in financial journalism as founding member of El País. He's been communications director of Bank of Spain, member of the ECC at the European Central Bank, Institutional Relations director at Iberia and editor at La Economía 16 magazine.

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