ECB Vows to Defend the Euro

European Central Bank President Mario Draghi has promised to do “whatever it takes” to save the euro, raising expectations that the bank will soon step in to soothe jittered investors and markets that have sent borrowing costs soaring for countries like Spain and Italy.

The remarks were made during a question-and-answer session at the Global Investment Conference organised by the UK government to mark the start of the London 2012 Olympics.

European Central Bank President Mario Draghi has promised to do “whatever it takes” to save the euro, raising expectations that the bank will soon step in to soothe jittered investors and markets that have sent borrowing costs soaring for countries like Spain and Italy.

The remarks were made during a question-and-answer session at the Global Investment Conference organised by the UK government to mark the start of the London 2012 Olympics.

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Acknowledging that the unified currency faces “short-term challenges” that require an immediate response, Draghi said:

[quote] Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough. [/quote]

While Draghi did not elaborate when and how the bank intends to act, it is speculated that the ECB will resume its purchases of euro area government bonds under the Securities Market Programme.  

Barring any strong objections from Germany or other eurozone markets, Reuters says the apparent new resolve of the central bank could put a solid floor under the euro for now, as investors pare bets that the currency would continue to tumble as the European debt turmoil festered.

Investors will be paying close attention to the next ECB meeting, scheduled next Thursday, to see if the central bank follows up Draghi’s words with any credible action plan.

Spain and Italy’s borrowing costs eased slightly yesterday while US treasury yields rose from their record lows following Draghi’s comments.

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When asked what probability he would assign to the euro zone having the same number of members it has today in two years, Draghi commented:

[quote] I don’t venture into speculations about things like changes in the treaty. The treaty was meant to have the number of countries that we see today, so frankly I can’t really estimate the probability of that. We think the euro is irreversible. [/quote]

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