It can be a very long time to build a house of cards, but only one awkward movement to destroy it. In 2012, Mario Draghi said that the ECB will do everything possible to save the euro; and now, after 8 years, Christine Lagarde, his phrase that the central bank does not solve the problem of narrow spreads, raised the sword of Damocles over the head of the euro zone. Investors immediately drew parallels with 2011, when the rise in ECB rates auknulos debt crisis. European stocks have collapsed as knocked down, the yield of the currency bloc peripheral countries' bonds shot up sharply, and the euro sank immediately by 2% against the US dollar.
Theoretically French law: the objective of the ECB is to stabilize inflation at 2%, but if he is not able to calm the markets, there is no monetary incentive to rein in consumer prices do not succeed. Eurozone - is the union of different countries' economic development, and the weaker ones de facto should have higher borrowing costs. Expansion of core bond yield spreads (Germany) and the peripheral countries perceived by investors as a political risk growth. We are talking about the risk of collapse of the euro zone, which Mario Draghi promised to prevent. The ECB should not lead to fragmentation, shifting responsibility to others. Especially now, when the whole region is suffering from a coronavirus.
Not surprisingly, the Italian bond yields soared, while European stock index fell at the fastest rate in history. If the ECB will not support spreads the same way as non-residents sold debt of developing countries, they will sell the securities issued in the south of the euro zone. As a result, Rome, Athens, Lisbon will ask yourself, why do we need it? Is not it easier to return to the lira, drachma and escudos, that will solve the problem quickly?
The dynamics of the Italian bond yields
As I expected, the fate of the euro does not affect the extent of monetary stimulus, and it Christine Lagarde at a press conference on the results of the March meeting of the Governing Council. Investors are seriously frightened the collapse of the euro zone risks and turned a deaf ear and extending QE at € 120 billion until the end of 2020 and the launch of the ECB's program of new targeted cheap credit to banks, and even saving deposit rates unchanged at -0.5%. French attempt to shift the responsibility on the shoulders of governments dearly cost the "bulls" on EUR / USD. During the crisis, everyone must work together. As a single cam.
And let Lagarde later in an interview with CNBC tried to smooth over his gaffe, saying that the opponent is the fragmentation in this difficult moment for the euro area, to reassure investors it did not succeed. The euro does not help either the fastest one-day peak of the S & P 500 c 1987 lowered the index of the territory of the "bear" market, nor increase the probability of a recession of the US economy in 2021 from 26% to 49%, according to a survey of 55-year-experts Wall Street Journal, or limitations arsenal ECB monetary expansion. In order to recover, the "bulls" on EUR / USD nosebleed need to cling to 1.12.