, Columnist
Draghi's Big Bazooka Is Misfiring
ECB should look at the widening gap with cheap debt
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Mario Draghi's unorthodox policies have driven yields on government bonds and corporate debt to record lows. But so far they've had little impact on the cost of equity, which has stayed stubbornly high since the financial crisis. That may explain why the ECB's attempt to kickstart investment has stalled.
The cost of equity is the return investors demand in terms of dividends and capital gains to hold a company's shares. Low interest rates have supported share prices but not enough to prevent a widening gap between the cost of equity and debt. (The chart below shows how this is playing out in Germany.)