According to Barclays Economics Research, Mr. Draghi’s comments indicated that the ECB is prepared to take major policy actions at its September meeting. Mr. Draghi had suggested that the governments implement the European Stability Mechanism (ESM) or the European Financial Stability Facility (ESFS) to provide financial assistance to the eurozone members.
In order to create the fundamental conditions for such risk premia to disappear, policymakers in the euro area need to push ahead with fiscal consolidation, structural reform and European institution-building with great determination. As implementation takes time and financial markets often only adjust once success becomes clearly visible, governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial market circumstances and risks to financial stability exist – with strict and effective conditionality in line with the established guidelines. The adherence of governments to their commitments and the fulfilment by the EFSF/ESM of their role are necessary conditions [for some action on the ECB side].
Draghi’s comments also pointed out that large scale asset purchases could be undertaken to bring down yields in Southern Europe.
The Governing Council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective. In this context, the concerns of private investors about seniority will be addressed. Furthermore, the Governing Council may consider undertaking further non-standard monetary policy measures according to what is required to repair monetary policy transmission. Over the coming weeks, we will design the appropriate modalities for such policy measures”.
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