The European Central Bank has brushed aside calls for radical action to head off deflation and relieve pressure on emerging markets, denying that the eurozone is at risk of a Japanese-style trap.
Yields on German two-year notes almost doubled to 0.12pc as markets slashed expectations for future rate cuts, while the euro spiked 1.5 cents to more than $1.36 against the dollar, implying a further tightening of monetary conditions for Europe.
Mario Draghi, ECB president, said the bank is “alert to the risks, and stands willing and ready to act” if inflation falls even further below target or if the fragile recovery falters, but offered no clear guidance on future policy.
Deutsche Bank, BNP Paribas, Barclays and RBS had all expected a cut in the main interest rate, while there had been widespread reports that the ECB would open the door to quantitative easing - allegedly by halting "sterilisation" of its €175bn bond holdings.
“Monetary policy in the eurozone is incredibly tight and is doing real damage to the economy, yet they do absolutely nothing. It boggles the mind,” said one former ECB governor.
Draghi is a Central Banker, and I have no doubt what he would propose is excellent and logical. But what he wants in Outright Monetary Transactions would require all countries in the EURO zone to surrender national sovereignty on a scale that would mean they would no longer be fully independent countries.
I don't believe that the average Frenchman, German, Spaniard, Greek and Italian, is prepared to surrender their nation for the sake of the EURO and those bast**ds in Brussels. Their politicians would gladly, as have ours.
It is not about money, it is about their very own national sovereignty...unless some benign force appears on the scene (a Chinese boom for example, which is unlikely) the ECB will print because they will have to. Draghi is perfectly well aware of this and quite prepared to carry the policy through; but first he has to fight a private battle with the German punishment freaks.
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