Former Bank of England policy maker Sushil Wadhwani said European Central Bank President Mario Draghi must follow through on his comments this week and break a pattern of euro-area officials disappointing investors.
Draghi said yesterday the ECB would do “whatever it takes to preserve the euro,” comments that helped boost European stocks and bonds.
“The typical pattern right through this crisis has been one where they make certain statements that get markets excited and then we unfortunately have to grapple with the detail,” Wadhwani, founder of Wadhwani Asset Management LLP, said on Bloomberg Television in London today. “And when the markets realize that actually they are willing to do less than initially meets the eye, markets then sell off.”
Spanish and Italian bonds advanced for a third day on speculation the ECB will sanction purchases of government debt in its so-called Securities Market Program to ease the debt crisis. Italy’s 10-year yield fell below 6 percent for the first time in more than a week, while the Spanish yield dropped 18 basis points to 6.74 percent after surging to a euro-era record 7.751 percent on July 25. The Stoxx Europe 600 Index gained 1.3 percent.
“Given his language, one has to be hopeful that one is going to hear something new and decisive next week, but unfortunately so far, it hasn’t been sensible to be hopeful,” Wadhwani said of Draghi’s comments. “My fear though is that if all that happens is that he reactivates SMP and buys a few Spanish and Italian bonds, it doesn’t get you very far.”
“We have to see whether they can break the pattern this time,” he said. Draghi “is quite hemmed in.”