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ECB’s Draghi Feeds the Addicted Markets

Posted by Steve Markowitz on July 26, 2012

CNNMoney reported on today’s comments by European Central Bank (ECB) president Mario Draghi.  Draghi said: “The ECB is ready to do whatever it takes to preserve the euro,” and “the euro is irreversible.”

 

To the markets the implications of Draghi’s comments were clear.  The ECB would take yet another leap intervening in European financial markets.  This will include purchasing bonds from problematic countries including Spain and Italy and increasing its €1 trillion infusion into Europe’s banking system.  Stocks rallied across Europe.

The Dow Jones Industrial Average also reacted favorably, up 200 points in midafternoon trading.  It is remarkable with all of the interventions already attempted to fix Europe’s sovereign debt and banking problems that the equity markets still respond to such hollow promises.  Europe’s liquidity problems have been caused by excess debt that cannot be rectified by adding more debt.  Like drugs to an addict this latest elixir will soon wear off and the world will be back in crisis mode.

In concluding his comments concerning further ECB intervention, Draghi said: “The euro is like a bumblebee – it shouldn’t fly, but it does.  The euro needs to change into a real bee, and it will.”  Mr. Draghi doesn’t seem to understand that many bees do not survive to adulthood.

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