Mario Draghi can’t save the euro zone alone. He’s going to need help.
This was one of the key messages from a wide-ranging exclusive interview with Handelsblatt, conducted as the European Central Bank’s president prepares to lead his powerful institution into yet more uncharted territory in the early part of this year – the purchase of government bonds in a new round of U.S.-style monetary stimulus known as quantitative easing.
“We are making technical preparations to alter the size, pace and composition of our measures in early 2015, should it become necessary to further address risks of a too prolonged period of low inflation,” Mr. Draghi said, adding that the risk of the euro zone falling into full-blown deflation cannot be excluded.
It would mark the most aggressive step yet by the ECB to bolster what Mr. Draghi called a “fragile and uneven” recovery in the 19-nation euro zone, which has failed to pull itself out from under a 2008 financial crisis sparked by bad banks and extraordinarily high levels of government debt.
The euro fell to its lowest level in more than four years on Mr. Draghi’s comments, by Monday afternoon dropping 0.5 percent against the U.S. dollar to $1.2032. Spanish and Italian government bond yields also fell to their lowest levels since the start of the euro.