Draghi Scotches ECB Exit Talk as Spain Keeps Crisis Alive

8/2/2019 Draghi Scotches ECB Exit Talk as Spain Keeps Crisis Alive

1/6


2/6

The European Commission forecasts growth of 0.6 percent in Germany this year and contractions inItaly,

Spain, Belgium,Greece, Cyprus, the Netherlands, Portugal and Slovenia. The euro-area economy isprojected to shrink 0.3 percent.

Single monetary policy naturally focuses on maintaining medium-termprice stabilityfor the euro area

as a whole, Draghi said. It is up to national policy makers to foster domestic developments whichsupport the competitiveness of their economies.

Spanish Woes

Spain is struggling with unemployment in excess of 23 percent and abudget deficitthat hasnt beenunder the European Unions 3 percent limit since 2007. Investors began to doubt the countrys ability to

carry a debt load of nearly 80 percent of gross domestic product last year after the debt crisis spread

beyond Greece.

In defending budget reductions worth more than 27 billion euros to cut 3.2 percent from the national deficit,

Rajoy raised the specter of an international bailout that would seeSpainjoin Greece, Ireland and Portugal

in needing EU and International Monetary Fund aid.We remain concerned about the risk of another bout of financial market tensions linked to the debt crisis,

and note the troubling rise in bond spreads in both Italy and Spain in recent weeks as a potential early sign

of re-emergence of market stress, said Simon Barry, chief economist atUlster Bankin Dublin. Onbalance, we think that if there is to be a move in ECB interest rates this year, it s more likely to be a cut

rather than a hike.

To contact the reporter on this story: Jeff Black in Frankfurt [email protected]

To contact the editor responsible for this story: Craig Stirling [email protected]. Summarize the article.

2. What is the main role of ECB? How has it changed during the recent crises?

3. What exactly is "exit strategy?" Why do some people advocate exit strategy? How will it affect global

economy?4. Among EU countries that are in similar situation (i.e. PIIGS), why do you think Spain in particular is

keeping the crisis alive?

Role of ECB

keep prices stable (keep inflation under control), especially in countries that use the euro.

keep the financial system stable by making sure financial markets and institutions are properly

supervised.

settingkey interest ratesfor the eurozone and controlling the money supply

managing the eurozone's foreign-currency reserves and buying or selling currencies when necessary

to keep exchange rates in balance

helping to ensure financial markets and institutions are adequately supervised by national

authorities, and that payment systems function smoothly

authorising central banks in eurozone countries to issue euro banknotes
http://topics.bloomberg.com/italy/http://topics.bloomberg.com/italy/http://topics.bloomberg.com/italy/http://topics.bloomberg.com/greece/http://topics.bloomberg.com/greece/http://topics.bloomberg.com/greece/http://topics.bloomberg.com/price-stability/http://topics.bloomberg.com/price-stability/http://topics.bloomberg.com/price-stability/http://topics.bloomberg.com/budget-deficit/http://topics.bloomberg.com/budget-deficit/http://topics.bloomberg.com/budget-deficit/http://topics.bloomberg.com/spain/http://topics.bloomberg.com/spain/http://topics.bloomberg.com/spain/http://topics.bloomberg.com/ulster-bank/http://topics.bloomberg.com/ulster-bank/http://topics.bloomberg.com/ulster-bank/mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]://www.ecb.europa.eu/stats/monetary/rates/html/index.en.htmlhttp://www.ecb.europa.eu/stats/monetary/rates/html/index.en.htmlhttp://www.ecb.europa.eu/stats/monetary/rates/html/index.en.htmlhttp://www.ecb.europa.eu/stats/monetary/rates/html/index.en.htmlmailto:[email protected]:[email protected]://topics.bloomberg.com/ulster-bank/http://topics.bloomberg.com/spain/http://topics.bloomberg.com/budget-deficit/http://topics.bloomberg.com/price-stability/http://topics.bloomberg.com/greece/http://topics.bloomberg.com/italy/


3/6

monitoring price trends and assessing the risk they pose to price stability.

The euro-zone crisis thermometer is rising again. Spain's latest bond auction

looks distinctly limp versus the blowout successes at the start of the year. The

government raised 2.59 billion ($3.4 billion), at the bottom end of its 2.5

billion-3.5 billion target. Yields rose versus previous auctions; Spain had to

pay almost a percentage point more for four-year bonds than a month ago.

With an economy in recession, further austerity planned and banks fragile, a

crunch may be approachingand it is the European Central Bank that is likely

to play the decisive role.

The latest rise in yields is certainly worrying. The bellwether 10-year bond now

yields 5.7%, its highest since Jan. 9 and more than a percentage point higher

than the year's low. This latest slide in bond prices may reflect thin trading

ahead of Easter. Short-term borrowing costs remain low: Two-year yields are

at 2.7%. And Spain has already raised 47% of its targeted funding for this year,

which means it isn't under immediate pressure.

Spain's borrowing costs rose at its first debt sale since the government

announced its budget last week, as concerns over the country's economy grew.

Heard on the Street's Richard Barley and Dow Jones's Martin Essex discuss.

But Spain is relying largely on its own banks to buy its bonds with cheap money

supplied by the ECB. Spanish banks bought 39 billion of government bonds in

January and February, compared with 8 billion for German banks and 6

billion for French banks, Barclays notes. That ties the fate of Spain's banks

closer to that of the government, whose debt is rising at a rapid pace as the


4/6

budget deficit remains high and the economy shrinksa situation that

continues to worry equity- and bond-market investors.

Spain's fate increasingly lies in the hands of the ECB, which has taken over

much of the funding of Spanish banks. Its exposure to Spanish banks hit 15%

of the country's GDP by the end of February, according to J.P. Morgan. Indeed,

Spanish banks account for a staggering 47% of all ECB borrowing and were by

far the biggest participants in the ECB's two three-year Long-Term Refinancing

Operations. If this exposure continues to rise, the ECB may become concerned

about its own balance sheet. That could result in it putting pressure on Madrid

to seek euro-zone help, as it did with Ireland. Any euro-zone funds would likely

be used to recapitalize its banks.

But that isn't a step either side will want to take yet. It is in the euro zone'sinterest that Spain resolves its own problems. That means convincing investors

it can walk the tightrope between reining in its borrowing and choking off any

recovery. The new government's credibility suffered when it appeared to water

down key overhaulsnotably of the banking sectorand raised doubts about

its commitment to its fiscal targets during ECB-induced easier market

conditions earlier this year. It doesn't have long to repair it.

.

,

.

. 2008

.

.

ECB() . ECB

, ECB

. ECB .

ECB

. ECB

. ECB , .
http://100.naver.com/100.nhn?docid=29566http://100.naver.com/100.nhn?docid=29566http://100.naver.com/100.nhn?docid=29566http://dic.search.naver.com/search.naver?sm=svc_hty&where=kdic&query=%C0%E7%C1%A4%C1%F6%C3%E2http://100.naver.com/100.nhn?docid=725299http://100.naver.com/100.nhn?docid=725299http://100.naver.com/100.nhn?docid=129824http://100.naver.com/100.nhn?docid=129824http://100.naver.com/100.nhn?docid=81518http://100.naver.com/100.nhn?docid=81518http://terms.naver.com/entry.nhn?docId=731930http://terms.naver.com/entry.nhn?docId=800372http://100.naver.com/100.nhn?docid=141750http://100.naver.com/100.nhn?docid=141750http://terms.naver.com/entry.nhn?docId=800372http://terms.naver.com/entry.nhn?docId=731930http://100.naver.com/100.nhn?docid=81518http://100.naver.com/100.nhn?docid=81518http://100.naver.com/100.nhn?docid=129824http://100.naver.com/100.nhn?docid=129824http://100.naver.com/100.nhn?docid=725299http://dic.search.naver.com/search.naver?sm=svc_hty&where=kdic&query=%C0%E7%C1%A4%C1%F6%C3%E2http://100.naver.com/100.nhn?docid=29566


5/6

. ECB ,

12 .

ECB , .

? .

. ECB

, . 7 ,

, 12

. 7 , 5

. , ECB

6 , 17 ECB

.

.

1913 ' ' . ,

, . ECB

(EMU) 1998 ,

ECB .

.

ECB

1978 ''

.

.

EMU EMU

(Maastricht Treaty) .

EMU ,

ECB . ECB

.

2010 5

(SMP) , ECB

. SMP SMP

ECB .

SMP

.
http://focus.chosun.com/nation/nationView.jsp?id=8http://focus.chosun.com/nation/nationView.jsp?id=8


6/6

ECB .

, ,

. ECB .

ECB .

. 1913

. .

ECB

. ECB

.

ECB ECB

. ECB .

.

.

. ECB

.

. ECB ,

. ECB

,

.

tip[]ECB 17

[] 1999

[]

[]2010 5

Documents

Draghi Scotches ECB Exit Talk as Spain Keeps Crisis Alive