Analysts were disappointed Thursday when the European Central Bank (ECB) announced it would not take any new action to ease concerns over contagion in the European Union (EU). While the ECB did keep interest rates at the record low of 1%, it declined to increase its bond purchase program. European stock markets, which had lifted on the prospect of decisive action, fell initially in response, but rallied to a strong close. Analysts had hoped that the ECB would take bold steps to protect the euro and halt contagion among the nations of the euro zone.
A piece of good news seemed to be Spain, which had been drawing closer to the crosshairs of the crisis. It was able to sell 2.5 billion euros’ worth of 3-year bonds at a Thursday tender, according to Reuters, with solid demand. While the yield for those bonds was 50% higher than it had been at the beginning of October, it did not rise as high as had been feared.
Jean-Claude Trichet, president of the ECB, had said of the ECB’s inaction at a news conference, “I say we are constantly alert. We are constantly looking at the situation of the markets. The Securities Market Program is ongoing, I repeat—ongoing … I won't comment on the observations of market participants.”
“Looking” at the situation may not be enough. Economists and analysts alike are expressing concern over the failure of the ECB to act, saying that the euro itself is in danger and that contagion may spread beyond the euro zone to the U.S. and Asia.
Carl B. Weinberg, chief economist at High Frequency Economics, spoke out strongly against the inaction of the ECB. In a statement, he said of the announcement, “People who were hoping for the ECB to announce an important increase in its bond purchase program did not get what they wanted. People who were hoping that the ECB would stop sterilizing its asset purchases and increase bank liquidity were disappointed. … In other words, the ECB will continue doing what it has been doing to stabilize the banking system and calm the markets.”