Mendoza School of Business

European Central Bank chief swears to ‘preserve the euro,’ Dow soars

Published: July 26, 2012 / Author: Tiffany Hsu

The following is an excerpt from an article that appeared in the Los Angeles Times. It quotes Finance Professor Jeff Bergstrand on the European Central Bank preserving the euro. To read the entire article visit: European Central Bank chief swears to ‘preserve the euro,’ Dow soars

Mario Draghi, president of the European Central Bank, pledged Thursday that the institution “is ready to do whatever it takes to preserve the euro,” sending financial markets soaring around the world.

The Dow jumped more than 250 points in morning trading after Draghi said in no uncertain terms that member nations’ commitment to the euro currency, whose future has been in doubt as countries — especially Greece — consider a return to heritage currencies, is “irreversible.”

At the Global Investment Conference in London, Draghi suggested that the bank could be gearing up to use its substantial buying power to strong-arm bond yields into submission.

Higher rates for riskier countries could “hamper the functioning of the monetary policy transmission channel,” he said. But keeping borrowing costs in check for struggling Spain and Italy could temper and even reverse the effects of the European debt crisis, analysts hope.


“The U.S. Federal Reserve has likewise provided considerable liquidity to the US banking system – much quicker and in larger amounts – and this has avoided recession in recent years,” said Jeffrey Bergstrand, a finance professor at the University of Notre Dame. “But even this is insufficient to bring down U.S. unemployment in 2012 or have much effect in 2013.”


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