European Central Bank President Mario Draghi has boxed himself into a corner.
Spanish and Italian bond markets rallied yesterday as investors cheered Draghi's signal that the ECB is prepared to intervene to reduce soaring yields. Now he has to deliver, or face deep disappointment on financial markets, analysts said. The risk in doing so is alienating key policy makers on the ECB council, such as Bundesbank President Jens Weidmann. The Bundesbank reiterated its opposition to bond purchases today.
"Draghi is damned if he does and damned if he doesn't," said Carsten Brzeski, senior economist at ING Group in Brussels. "He maneuvered himself into an extremely difficult situation. Expectations are very high."
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