ECB rescue plan boosts euro and makes markets purr

 

The European Central Bank's plan to shore up the eurozone seemed to have done the trick, at least in the short term, with stock markets surging yesterday on the back of the bank's pledge to buy the bonds of ailing eurozone members.

Borrowing costs for Italy, Spain and Portugal also plummeted in response to the ECB's move, while the euro surged early yesterday as the full implications of ECB chief Mario Draghi's plan had markets purring with pleasure.

"Draghi has lowered the risk premium towards the euro," said George Saravelos, a strategist at Deutsche Bank. "We expect the euro to rise above $1.27 in the near term. The single currency also hit a two-month peak against the Japanese yen and one-month high against the Swiss franc.

Yields on Spanish 10-year government bonds fell to 5.8 per cent – the first time they have been below six per cent since May. Italian bond yields were down to 5.13 per cent. The stock markets in France and Germany neared six-month highs during the afternoon. But disappointing job numbers from the US took a little wind out of the sails of the global stock market as the day progressed.

The ECB bond-buying scheme – known as outright monetary transactions – will only come into being when a member state requests help and has applied to two EU bailout funds. As yet none of the ailing eurozone nations has asked the ECB to buy its bonds, but the existence of what Mr Draghi called a "fully effective backstop" has been enough to convince many that this time around, the eurozone means business in tackling the government debt crisis.

"The ECB delivered effectively everything we were looking for and more. We are surprised by the level of detail and directness of the statements on additional monetary policy measures," said Scott Thiel, deputy chief investment officer at BlackRock.

But markets have reacted positively before to attempts to ease the euro crisis, only to go into reverse once the political squabbling starts among EU leaders. And the ECB's scheme is definitely seen as more of a time-buyer than a magic bullet.

"The new strategy buys time and will enable the member states to fund themselves more effectively but, with a slowing global economy and uncompetitive exchange rate, it will not contribute to higher GDP or lower debt ratios," said Ted Scott, F&C director of global strategy. "For that to occur, a more fundamental change in strategy is needed which is something the politicians have to decide upon."

Whether or not the good mood lasts depends on national governments sticking to their plans to reduce their debt levels. "We need two legs," Mr Draghi said in presenting the new tactics. "Governments have to undertake the policy reforms. There is no intervention by the central bank, by any central bank, that is actually effective without concurrent policy action by the governments."

There are also question marks over whether the conditions set for ECB intervention are too strict for politicians in Italy and particularly Spain, both of which are struggling under the weight of austerity. In addition, as the ECB's decision last year to pump a trillion euros into the financial system showed, there is still the potential for major problems in the eurozone banking sector.

News
people'It can last and it's terrifying'
Sport
Alexis Sanchez, Radamel Falcao, Diego Costa and Mario Balotelli
football
Sport
Danny Welbeck's Manchester United future is in doubt
footballGunners confirm signing from Manchester United
News
people Emma Watson addresses celebrity nude photo leak
PROMOTED VIDEO
News
ebooksAn unforgettable anthology of contemporary reportage
Sport
footballFeaturing Bart Simpson
News
Katie Hopkins appearing on 'This Morning' after she purposefully put on 4 stone.
peopleKatie Hopkins breaks down in tears over weight gain challenge
Arts and Entertainment
Olivia Colman topped the list of the 30 most influential females in broadcasting
tv
News
Kelly Brook
peopleA spokesperson said the support group was 'extremely disappointed'
Life and Style
techIf those brochure kitchens look a little too perfect to be true, well, that’s probably because they are
Sport
Andy Murray celebrates a shot while playing Jo-Wilfried Tsonga
TennisWin sets up blockbuster US Open quarter-final against Djokovic
Arts and Entertainment
Hare’s a riddle: Kit Williams with the treasure linked to Masquerade
booksRiddling trilogy could net you $3m
Arts and Entertainment
Alex Kapranos of Franz Ferdinand performs live
music Pro-independence show to take place four days before vote
News
news Video - hailed as 'most original' since Benedict Cumberbatch's
News
i100
Life and Style
The longer David Sedaris had his Fitbit, the further afield his walks took him through the West Sussex countryside
lifeDavid Sedaris: What I learnt from my fitness tracker about the world
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Software Solution Technician - Peterborough - up to £21,000

£20000 - £21000 per annum + Training: Ashdown Group: Graduate Software Solutio...

Supply teachers needed- Worthing!

£100 - £120 per day: Randstad Education Crawley: Supply teachers needed for va...

Year 4 Teacher

Negotiable: Randstad Education Plymouth: Year 4 Primary Teachers needed Rand...

IT Technician

£50 - £65 per day: Randstad Education Cheshire: Randstad Education are current...

Day In a Page

'I’ll tell you what I would not serve - lamb and potatoes': US ambassador hits out at stodgy British food served at diplomatic dinners

'I’ll tell you what I would not serve - lamb and potatoes'

US ambassador hits out at stodgy British food
Radio Times female powerlist: A 'revolution' in TV gender roles

A 'revolution' in TV gender roles

Inside the Radio Times female powerlist
Endgame: James Frey's literary treasure hunt

James Frey's literary treasure hunt

Riddling trilogy could net you $3m
Fitbit: Because the tingle feels so good

Fitbit: Because the tingle feels so good

What David Sedaris learnt about the world from his fitness tracker
Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Second-holiest site in Islam attracts millions of pilgrims each year
Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering