Spain, Italy reject bailout; ECB head Draghi insists on single currency
MADRID - Agence France-Presse
A trader works on the floor of the New York Stock Exchange on Aug. 2. After European Central Bank president Mario Draghi’s failed to announce plans to help solve Europe’s debt crisis, stocks fell, with The Dow Jones Industrial Average falling 92 points, or 0.7 pct, on Aug. 2. Spain and Italy, meanwhile, said they would work together to get through the crisis and rejected a bailout. Draghi says it is pointless to bet against the euro. AFP photoSpain and Italy rejected on Aug. 2 the need for a bailout after markets fall sharply on disappointment that the European Central Bank (ECB) did not announce new immediate steps to tame the eurozone debt crisis.
ECB head Mario Draghi insisted earlier that the embattled single currency was “irreversible,” damning speculative financial market bets against the euro for pushing up government borrowing costs to unsustainable levels.
But in the absence of concrete measures, the markets returned to the attack, with Spanish borrowing costs spiking back to danger levels above 7.0 percent and Madrid stocks slumping more than 5.0 percent as Italy was also hit badly.
Italy, Spain to work together
United in adversity, Spanish Prime Minister Mariano Rajoy told a joint news conference in Madrid with his Italian counterpart Mario Monti that their “two countries want to work together” to get through the debilitating crisis.
“We are conscious that we are demanding great efforts from our citizens but we know that is the only way out,” Rajoy said while Monti added: “The solution can only be found if we all do our homework.” Both rejected outright any idea that they would need an international bailout, pointing instead to Draghi’s announcement in Frankfurt that the ECB might intervene on the government bond markets to drive down borrowing costs.
“A bailout, no. But actions to prevent that a country’s borrowing costs become too expensive, these types of aids we should study,” Monti said.
Last week, Draghi had promised he would do everything to save the euro, raising hopes the ECB would intervene directly on government bond markets to force down borrowing costs for the likes of struggling Spain and Italy.
He reiterated Aug 2 that the ECB was ready to do this -- but not just yet, while the bank kept its benchmark interest rate unchanged.
In face of growing pressures, the ECB “may undertake outright open market operations of a size adequate to reach its objective,” he said, but added that the details would be worked out “in the coming weeks.” Whatever the circumstances, Draghi said it was “pointless” to bet against the euro. “It stays. It stays. It stays,” he insisted.
Rajoy welcomes remarks
Spain’s Rajoy welcomed Draghi’s remarks on possible bond purchases, even as the adverse market reaction put Madrid back in focus as the next eurozone state to perhaps need a massive EU-IMF bailout. “It is a positive statement,” Rajoy said.
Analysts were more critical, noting that the markets felt let down after Draghi last week had promised that the ECB would do all in its power to safeguard the euro.
Most had taken his comments then to mean the ECB would step into the bond markets, effectively acting as a backstop to prevent eurozone borrowing costs crippling governments desperately trying to balance the public finances.