The damaged ECB legitimacy

Last July Mario Draghi, president of the European Central Bank, spoke of the ECB's intent to do "whatever it takes" to hold the euro area together. In the months after his comment, the ECB unveiled its Outright Monetary Transactions programme, in which it pledged to make unlimited purchases of troubled government bonds under certain conditions. No policy has been as important in bringing down government borrowing costs around the periphery. OMT now faces scrutiny in Germany's constitutional court.

The press conferences following the European Central Bank’s monthly monetary policy decisions have been pretty uneventful as of late. On every first or second Thursday of the month, ECB President Mario Draghi is happy to remind reporters at the ECB press conference just how in control of European sovereign debt markets the central bank is.

JEAN-CLAUDE TRICHET, President of the European Central Bank, has come out swinging in the second round of Europe’s crisis of both politics and finance. Yields on the sovereign debts of peripheral euro zone countries stabilised yesterday after Mr Trichet argued that investors are “under-estimating the determination of [euro zone] governments...and indeed the 27 member council”, providing some respite to beleaguered members.

Euro-area finance chiefs, pressuring Cyprus to shrink its banking system as the condition for a bailout, are reviving demands they jettisoned last week as too extreme, four European officials said. Finance ministers for the 17 euro countries are considering a plan to shutter the two biggest banks in Cyprus and freeze the assets of uninsured depositors, said the four officials, who asked not to be named because the talks are ongoing. The ministers are holding a teleconference tonight.fla

Article written by Prieur du Plessis, editor of the Investment Postcards from Cape Town blog.I have recently been interviewed by the South African media on a number of issues regarding the global economy and markets. An edited version, in Q & A format, is provided below.The rout in global financial markets is continuing, characterized by extreme swings of up to 5% in some markets. What is the reason behind the extreme volatilities in the markets?