European Central Bank (ECB) president Mario Draghi showed strong support for the euro in the comments he made yesterday in London. Although unexpected, his statements drove Spanish stocks upward. Yesterday they had their best session in two years after closing the trading session up 6.06%.
Spain's risk premium caught the Draghi bug and dropped below 600 basis points for the first time since Friday. What has changed since last Saturday, when Draghi told the French newspaper Le Monde that the ECB is not designed to resolve problems for countries that are in trouble?
At first glance, nothing much. But for some financial markets experts, Draghi's statements signal that things are stirring in the heart of the ECB. The ECB could soon announce measures that will provide some aid for Spain and Italy for the near term. Any possible announcements would be made in an ECB meeting next Thursday.
Draghi's shift in attitude opens up a range of possibilities such as more long-term liquidity injections, more ECB bond buying or granting some banks access to the recovery fund.
The last option has received the most support from European leaders, even the wary Bank of Austria governor Ewald Nowotny. Although markets have calmed for now, we should remember the enormous work that Prime Minister Rajoy has to do in order to reign in regional and national government spending. And the potential for a bailout is as strong as it was two days ago.
