sábado, 27 de julio de 2013

sábado, julio 27, 2013

HEARD ON THE STREET

July 26, 2013, 9:07 a.m. ET

Look to Economy Now, Not ECB

By RICHARD BARLEY



Twenty-three words was all it took.
 
A year ago, with Spain virtually cut off from raising funds in bond markets and Italy close on its heles, European Central Bank President Mario Draghi declared: "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough."
 
Mr. Draghi's intervention and the ECB's subsequent creation of its Outright Monetary Transactions bond-purchase program were clearly a vital turning point in the euro-zone crisis. But investors shouldn't overestimate its reach.
 
True, since then, the change in euro-zone markets has been vast—even though Mr. Draghi hasn't spent a cent. Spanish government bonds have returned a whopping 22.9% in the past 12 months, according to Barclays; their Italian peers have returned 19%. Spanish stocks are up 31.2%; their Italian and Greek counterparts are up 24.4% and 46.7% respectively. The euro, far from breaking up, has climbed 8% against the dollar.
 
No wonder Mr. Draghi has been keen to talk up the success of the OMT— even publicly judging it in terms of stock-market gains. But its positive power has waned. Spanish 10-year bond spreads essentially stopped tightening versus Germany in April; Italian spreads reached their tightest point in January. For Spanish and Italian stocks, most of the gains came in the first few months after Mr. Draghi's promise. This year, Spanish stocks are up just 2.3% and Italian stocks less tan 1%.
 
That doesn't make the OMT redundant—it is still important in preventing panic from spreading across the euro zone. The drawn-out Italian election, the botched Cypriot bailout, renewed tensions in Greece and the Portuguese political crisis have all failed to cause more than localized ripples. But the OMT cannot accelerate economic recovery.
 
And while investors focused on "whatever it takes," they have tended to pay less attention to "within our mandate." The ECB still has problems with meshing its mandate, which bans monetary financing of governments, with purchases of government bonds.

Over the year, the OMTwhose inner workings have never been entirely satisfactorily explained—has become ever more insubstantial, even as it has continued to keep markets in line.
 
As with quantitative-easing programs in the U.S. and U.K., policies like the OMT can be hugely important in staving off disaster. But they are no substitute for resolving underlying economic problems. The euro zone still has a long way to go on that front. The ECB has powered strong gains for euro-zone investors in the past 12 months; its new pledge to keep monetary policy loose for an extended period is an insurance policy for portfolios. But it will be up to the euro-zone economy to drive markets from here.
 
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