The ECB plays on expectations and emotions

2 August, 2012 European stock markets closed in the minor. Investors were unhappy that the position of the European Central Bank and its president, Mario Draghi on emergency issues remained passive. Draghi declared nothing about any specific measures that the ECB will be provided in order to save the European currency. In addition, the ECB has kept interest rates - 0.75%. According to Draghi, pricing pressures in the euro area remained moderate and inflation risks - balanced. This situation had many investors over the barrel, because last week, Draghi said that the bank would do "whatever it takes" to protect the euro. There were rumors about new programs for supporting financial markets, investors expect applications for new injections of liquidity, but this did not happen. The ECB has decided not to rush into action, but such a policy had been met negatively. For example, Blaabyerg Teglund, chief economist at FIH Erhversbank, quoted by MarketWatch, commented on the situation as follows: "This is a big disappointment. He's really playing with fire. After last week's rhetoric, it is very dangerous and risky game, when the EU could lose credibility".

Expert’s opinion

World expected new funding programs (in particular the statement of Germany's readiness to provide another loan to pay off debt hole), but after the leader’s meeting and the immutability of the discount rate it was clearly realized that the ECB will not change its policy. Despite statements by the ECB that it will interfere with the primary and secondary debt market, everyone knows that he can do so only after a request of a country in need. Germany is the main financial donor of the EU, due to which Greece, Italy, Portugal are living and - on fears the EU - can begin to live Spain. Germany, however, understands that you need to live within its means, that of lending to these countries, it not only receives interest income, but does not receive even the amount of the loan, so the country was opposed to granting further loans to pay off debts laggards.
Indeed, there is nothing critical in such situation. The expectations are very important in this game and Draghi has used them virtuosic. Markets have fallen simply because investors' expectations were not realized, and now there is no confidence in the euro as a stable and reliable currency. Draghi is situated between two fires: the countries that do not want to do and want to get money just for "thank you" and the country who know the value of money they earn themselves. So he comes up with these moves until they can find money to pay off debts.

On the basis: http://www.ecb.int/press

Mikhno Alexandra ( the paralegal of Moscow office of Honest & Bright)