Draghi's speech anniversary
A year has passed since Mario Draghi has promised to do "whatever it takes" to save the euro. Most analysts estimate that speech of the ECB’s President as a huge success. During 12 months since that time EUR rate stabilized, the euro zone yield spreads narrowed and even Spanish unemployment rate started declining.
Still, if we dig dipper, not all is so nice. The markets calmed, but the European banks didn’t ease their credit standards and increase lending. Plenty of companies in countries such as Spain are still struggling to obtain funding.
The main risk now is that the European policymakers completely relax thinking that the storm has passed and there’s no need to hurry with various structural reforms.
Chart. Daily EUR/USD
Chart. Weekly EUR/USD
As the OMT program hasn’t been used yet and inflation is below 2%, the ECB has plenty of room to manoeuvre if the markets get once again overly stressed about the fate of the euro area. The central bank can cut its benchmark rate once again, charge banks for depositing money at the regulator, and link the bank’s guidance on future policy to economic indicators or time horizons, or introduce more long-term loans to banks.
Still, the more Mario Draghi relies mostly on clever rhetoric, the bigger the chances that the market will call his bluff.