Mendoza School of Business

Will Draghi Put His Money Where His Mouth Is?

Published: July 26, 2012 / Author: Matthew Philips

The following is an excerpt from a Bloomberg Businessweek article that quotes Professor Jeff Bergstrand on Europe’s stalling economy. To read the entire article visit: Will Draghi Put His Money Where His Mouth Is?

In the latest episode of Europe’s repetitive debt drama, after seeming to get better for a few weeks, things got really ugly again, with Spanish and Italian bond yields spiking to record highs. Markets tumbled. Then, just when things looked like they couldn’t get much worse, a European leader stepped in with some aggressive comments about how he’ll do everything necessary to make things better. Markets rejoiced. Sound familiar?

During a speech at the Global Investment Conference in London today, European Central Bank President Mario Draghi said the ECB is “ready to do whatever it takes to preserve the euro.” He added: “Believe me, it will be enough.”


And then, of course, there’s the problem of Europe’s stalling economy, which is making the whole debt crisis even worse. “This does nothing to prevent a recession in Europe,” says Jeffrey Bergstrand, a former Federal Reserve economist and currently a finance professor at the University of Notre Dame. “Further ECB action will stabilize things, but what the markets really want is fiscal stimulus to boost economic growth.”


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