Spain, Italy reject bailout; Draghi says euro 'irreversible'

Spain and Italy rejected Thursday the need for a bailout after markets fell sharply on disappointment that the European Central Bank 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.

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, adding that the issue had not even come up at the talks. "We did not discuss it."

"I think the ECB is highlighting that it will meet our objectives. The ECB president said the central bank should take the necessary actions," he 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 Thursday 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 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.

The euro briefly topped $1.24 after Draghi spoke but then plunged when there were no follow-through measures, hitting $1.2174 in late trade.

"As markets digest the fact the ECB has done nothing concrete to sort out Spain's problems, $1.20 comes back into view," said research director Kathleen Brooks at trading site Forex.com.

The International Monetary Fund meanwhile called for more action in Europe as the crisis undercuts global growth prospects.

In an unusually forthright statement, the IMF insisted "further monetary easing and unconventional support would ease tensions as other policies are implemented and take effect."

Analysts said Draghi's remarks appeared intended to remind the markets that the ECB was ready to act but in the absence of anything concrete, investors opted to take their money off the table.

The intervention signal "clearly ... is intended to be an open ended threat" to deter investors betting against the euro, said Charles Diebel, head of market strategy with Lloyds Bank.

"This is all a valid plan but the market is taking it as more like jawboning than something material. Once again this is the big question," Diebel said.

"I think the sceptical take from the markets is understandable but I would caution that Draghi is likely to follow through with actual actions. But, it's conditional on the governments following through as well," he added.

The Bank of England also held its monthly policy meeting Thursday and left its main interest rate steady at 0.50 percent while announcing no change in its Quantitative Easing (QE) stimulus policy.

Loading...

Editor’s note:Yahoo Philippines encourages responsible comments that add dimension to the discussion. No bashing or hate speech, please. You can express your opinion without slamming others or making derogatory remarks.

  • High spirits battle: Asia tycoons vie for cognac maker Louis Royer

    * Louis Royer valued at about $150 mln - sources * Suntory selling cognac maker as part of portfolio reshuffle * Asia cognac demand seen rising 13 pct in 2015-19 -Euromonitor (Adds graphic link) By Denny Thomas and Khettiya Jittapong HONG KONG/BANGKOK, May 30 (Reuters) - Thai billionaire Charoen Sirivadhanabhakdi is considering buying cognac maker Louis Royer, people familiar with the matter said, potentially locking horns with a Philippine tycoon for the French firm amid a forecast …

  • OIC asked to complete review of peace pact with MNLF
    OIC asked to complete review of peace pact with MNLF

    The Philippine government is asking the 57-nation Organization of Islamic Cooperation (OIC) to finally complete the tripartite review process of the implementation of the 1996 peace agreement with the Moro National Liberation Front (MNLF). The review – snagged  for several years as government had its hands full with the peace process with rival faction Moro Islamic Liberation Front (MILF) – tackles how the 1996 peace pact with the MNLF has been implemented and centers on the three remaining …

  • Alleged Binay dummies appear in Senate probe
    Alleged Binay dummies appear in Senate probe

    Eight of the resource persons ordered arrested by the Senate finally attended the 21st public hearing of the Senate Blue Ribbon subcommittee into the alleged anomalies involving Vice President Jejomar Binay, but the proceedings turned out to be a review of matters previously presented. For over three hours, the subcommittee heard presentations regarding the alleged hidden assets of Binay and the issue regarding the supposed P200 million in kickbacks he received from a deal between the Boy …

  • DOJ wraps up Mamasapano probe
    DOJ wraps up Mamasapano probe

    The Department of Justice (DOJ) is wrapping up its investigation into the “massacre” of 44 members of the Philippine National Police Special Action Force (PNP-SAF) in Mamasapano, Maguindanao last Jan. 25. A joint team of prosecutors and NBI (National Bureau of Investigation) investigators is about to finish the second part,” Justice Secretary Leila de Lima has told congressmen. She was responding to questions raised by former senior police officer and now Rep. Samuel Pagdilao of party-list …

  • APEC meet in Bataan seen to boost tourism
    APEC meet in Bataan seen to boost tourism

    BALANGA CITY, Bataan – More than 2,000 delegates of the Asia-Pacific Economic Cooperation (APEC) and international media outfits are expected to enjoy the splendid coastline of Bagac town, which faces the West Philippine Sea, as they converge for a workshop in this province next month. …

  • DOST opens P54-M research facility
    DOST opens P54-M research facility

    A P54-million research and development facility of the Department of Science and Technology (DOST) was recently opened in Bicutan, Taguig for scientists and researchers to develop technology and techniques to allow Filipino fashion and clothing designers and manufacturers to produce more mainstream products from local, tropical fabrics like piña, banana and abaca. Science Secretary Mario Montejo said the Innovation Center for Yarns and Textiles (ICYT) is the DOST’s flagship effort at reviving …

  • DFA worried about alleged violations of convicted Pinoys’ rights
    DFA worried about alleged violations of convicted Pinoys’ rights

    Philippine embassy officials in Doha have raised their concern with Qatari authorities over coercion and human rights violations in the alleged forcing of three Filipino workers convicted of spying to provide information and confess to the crime. Speaking to reporters, Department of Foreign Affairs (DFA) spokesman Charles Jose yesterday said the embassy has raised the matter during several high-level meetings with Qatari officials and the national human rights committee in Qatar. “Our embassy …

  • US affirms ‘ironclad’ promise to defend Phl
    US affirms ‘ironclad’ promise to defend Phl

    US Defense Secretary Ashton Carter told his Philippine counterpart on Wednesday that Washington’s pledge to defend the Pacific nation remains “ironclad” and called for an end to land reclamation in the South China Sea, officials said. In talks in Hawaii with Voltaire Gazmin, Philippine secretary of national defense, the Pentagon chief “reaffirmed” the strong ties between the two countries and discussed territorial disputes in the contested waters of the South China Sea, where Beijing has been …

POLL

Should Aquino be held accountable over the Mamasapano operations?

Loading...
Poll Choice Options