ECB Still Searching for Real-Economy Fix
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Mario Draghi may soon find that "positive contagion" isn't a permanent cure
The European Central Bank president coined the phrase last month to describe the healing in financial markets since he signaled, last summer, that the ECB would do "whatever it takes" to preserve the euro. The result has been a drop in government-bond yields, a return of capital to the currency zone and rebounding stock markets.
That is all good. But as the ECB meets Thursday, parts of the markets remain hobbled. Namely, while banks have seen borrowing costs fall, the final link in the chain—lower interest rates to households and small businesses—remains broken. That is likely to stay a problem given resurgent doubts over the safety of Spanish- and Italian debt.
Since last July, the difference between the yield on Spain's two-year government debt and that of Germany has fallen by 2.75 percentage points, according to ING Bank. The premium Spanish small businesses pay for loans versus their German counterparts has fallen just 0.15 percentage point.
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