Mario Draghi’s first act as European Central Bank President may be to remind investors he’s not there to bail out governments, even as Italian and Spanish bond yields soared after euro-area leaders raised the prospect of Greece exiting the monetary union.
As Europe’s debt crisis worsens, Draghi, who chairs his inaugural policy meeting in Frankfurt today, will resist pressure to increase the central bank’s commitment to buying the bonds of distressed euro states, economists said. The ECB will also keep its benchmark interest rate at 1.5 percent, according to 49 of 55 forecasts in a Bloomberg News survey.
The ECB has been asked to do more and more to stem Europe’s debt crisis, which reached new heights last night as France and Germany said they would treat Greece’s surprise referendum on a second bailout package as a vote on its euro membership. French President Nicolas Sarkozy said Greece won’t get a “single cent” of assistance if it rejects the plan. Italian bond yields surged to euro-era records on concern the crisis will engulf other highly-indebted nations in the 17-nation currency bloc.
“Don’t expect the ECB to bail everyone out,” said Marco Annunziata, chief economist at GE Capital in San Francisco and a former International Monetary Fund official. “It should not and it will not, unless it becomes a matter of life and death for the euro zone.”
