The cost of Draghi’s great experiment

How will Mario Draghi be remembered? As the bazooka-toting president of the European Central Bank who vowed to do ‘whatever it takes’ to save the euro, dragging the eurozone through the sovereign debt crisis? Perhaps, but his monetary policy experiment could yet have a dreadful cost that will not be counted for many years.

  • By Lewis McLellan
  • 31 Oct 2019
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The European Central Bank under Draghi pushed monetary policy into new realms. No central banker could have done more to combat the aftershocks of the financial crisis. But for all his effort, a corresponding lack of the stuff among eurozone governments means that he leaves the bank scarcely any closer to its inflation target than when he took over.

His policies have been the driving force behind European debt markets for eight years and have left half of European government bonds carrying a negative yield. Despite this, the average inflation rate during his tenure has been 1.2% — a far cry from official target of “close to but below 2%”.

Negative rates and vast quantitative easing programmes have two dangerous consequences. First, investors’ portfolios are stuffed with negative yielding assets. Although the ECB’s elephantine presence in bond markets caused asset prices to soar, there has to be a limit when yields can plumb no deeper.

Without capital appreciation, Europe’s pension funds will face a colossal shortfall as an ageing population discovers that funds invested in government debt did not grow as required. The only viable alternative will have been to buy riskier credits, with all the losses that would entail.

Borrowers are more engorged than ever with debt, spurred on by cheap borrowing costs. The eurozone is groaning under an enormous debt burden. But growth is slow and so default risks must rise. 

Among corporate borrowers a recession will prove tricky enough; but if the problem grows to encompass countries with high debt-to-GDP ratios, it seems the traditional escape route of inflating away the burden will no be longer possible.

This newspaper has lamented for years the lack of an exit plan, or alternative, to quantitative easing. Draghi did what he had to do to keep the eurozone together. Investors have not stopped buying debt yet, even when they are set to redeem less than they paid for it at maturity.

But Europe’s failure to wean itself off official stimulus will only have stored up a bigger debt that must be paid by future Europeans.

  • By Lewis McLellan
  • 31 Oct 2019

All International Bonds

Rank Lead Manager Amount $b No of issues Share %
  • Last updated
  • Today
1 JPMorgan 356.74 1649 8.34%
2 Citi 330.83 1400 7.73%
3 Bank of America Merrill Lynch 282.39 1205 6.60%
4 Barclays 256.04 1054 5.98%
5 HSBC 210.66 1159 4.92%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $b No of issues Share %
  • Last updated
  • Today
1 BNP Paribas 39.98 186 7.03%
2 Credit Agricole CIB 37.82 159 6.65%
3 JPMorgan 30.85 82 5.43%
4 Bank of America Merrill Lynch 26.44 80 4.65%
5 Deutsche Bank 26.03 96 4.58%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $b No of issues Share %
  • Last updated
  • Today
1 JPMorgan 11.53 77 9.62%
2 Morgan Stanley 11.15 54 9.30%
3 Goldman Sachs 10.04 53 8.37%
4 Citi 8.05 63 6.72%
5 Bank of America Merrill Lynch 5.63 31 4.70%