Super Mario to ride to the eurozone’s rescue?

On 26 July the ECB Chief Mario Draghi told journalists at its monthly press conference the bank will do ‘whatever it takes to preserve the euro’. Super Mario to ride to the eurozone's rescue?That comment alone has been responsible for the recent euro strength and ability of the single currency to remain surprisingly flat against its main trading partners in spite of a deteriorating economic picture across the continent.

Mr Draghi is expected to announce at today’s ECB meeting details of a bond buying program aimed at bringing down the borrowing costs of Spain and Italy.

ECB intervention in peripheral bond markets is seen as crucial to buy time for struggling governments to enact the difficult and substantial reforms without losing market access for funding.

Needless to say, expectations are high that we get comprehensive details from the ECB today, if not we can expect a sharp reversal in the euro and European stock markets.

There are important and complex details to be worked out; what conditions will be attached to ECB help? Will private investors be demoted below the ECB in terms of seniority?

Even if Mr Draghi does deliver the message the markets want, another crucial decision looms on the horizon.

On the 12 Sept the German constitutional court will vote on German participation in the ESM, the permanent replacement for the EFSF.

As the Eurozone’s largest creditor, German participation in the ESM is absolutely essential and although there is only a small chance the decision will be blocked there are some important German officials opposed to the idea adding further doubt into an already uncertain situation.

The Bank of England meeting is also today but there are no expectation of changes to either the rate of the asset purchase scheme this month.

With the US presidential race hitting top speed, each monthly jobs report takes on further significance and this Fridays numbers are key.

Good numbers going into the election favour the incumbent Barak Obama and vice versa for the Republican candidate Mitt Romney.

This month expectations are for around 130K jobs added which is good but not exceptional and keeping the US economy in the goldilocks zone and not allowing much political leverage to be used by either candidate.

Leave a Reply