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Draghi, ECB and the Markets

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    S&P Capital IQ vice president Robert Keiser gives his outlook for the European markets.

  • Duration 4:28
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The yield on Spain's a ten year bonds rising -- 6% as -- first time.

Since ECB president Mario Draghi unveiled his plan to buy bonds of struggling eurozone countries.

The yield going up is not what was intended Nichols is just adding more pressure on Spanish prime minister Mariano Rajoy to -- for a bailout.

For more on this I'm joined by Bob Kaiser vice president S&P capital.

-- thank you for being here look we have ECB's saying all right unlimited bomb buying on those struggling.

Sovereign bonds of particularly Spain and Italy we have the German court saying yep okay will back the ESM the permanent bailout fund.

Two big major backstop -- -- this but is there a danger of complacency now because we just mentioned a ten year yield on Spain's.

I'm going back about 6% that's not exactly what we want to say.

Trace all the details are out now did you initially had the announcement from jarred me back in July in the market -- reacted very favorably to that.

But you have to details throughout last week now ECB has in place a two pronged approach they previously were back stopping the financial system European banks -- to -- -- Now they're addressing the sovereign risk in the system so on paper you have very what appears to be very powerful too prong approach but there are problems.

While all eyes on Spain because we already heard from Spain first time around no up banks don't need help -- he turns out they didn't need help to the tune of up to a hundred billion -- they need it.

Now it appears that Spain does need help with its economy as a whole.

For would not get anything back from Spanish prime minister rajoy who seems very reluctant to -- help.

Based on he doesn't like the conditions and be politically the it doesn't look good form.

What matters here is what the market facts because.

Spanish CDS this fall by roughly 50% the last six weeks for so long they were a CBS was pronounced 600 basis points -- -- around three.

So the market believes that Spain will be applying this program and that the European Central Bank will back -- Spain.

But again what happens centers are contagion risk -- market -- gonna turn its attention towards Italy is what is Italy.

It very much contrast what's going on US where.

The Federal Reserve just announced Q3 -- purchase every month for as long as it takes forty billion dollars in MBS and there's no conditions attached to it.

-- our version in the U -- of what quantitative easing should be.

In Europe there's a lot of questions a lot of considerations.

So really now it's up to -- ECB how well they can execute publicly pledged to.

-- -- but that's only one -- of the equation the other major part of this is yes they can.

Be a backstop but these countries in particular those struggling have to get those economic reforms in place.

That's the other part of this and in order to do that it is a very very tough austerity measures.

How's that going to work because how can you grow your economy while under those conditions.

Well that that really is the question the conditionality here with Spain with 25% unemployment rate you know how is the man on the street gonna react to austerity requirements when they come down the road.

We're gonna see riots in the street like we've seen an increase in the Islamic countries or.

-- Spain swallow the bitter pill.

And can accept the demands to get what the market is asking for.

And we've -- the European Commission coal for even greater.

Integration now we -- you -- the banking union a fiscal union in your opinion is that the only way that this.

Euro project is going to work because it's clearly not working as a stand.

I think over time the ECB needs to do anything.

Small steps what the Federal Reserve just -- when when the -- don't.

Federal Reserve just -- reason it's for all United States he can't just have one sovereign that's under pressure any given month.

-- -- And in the marketplace turns its attention to Italy.

So ultimately the united states -- you -- you really you can mean drug he said of himself when he announced that he would do everything within his power support single currency zone.

He also said later in a speech that.

We need to have more Europe not less here so I think the two we're gonna have to go hand in and it's and it's gonna have to be political cooperation or questions like austerity political cooperation in the eurozone -- political cooperation anywhere they say yeah that's true that's very true very quickly Greece stays in -- drops out.

A tough one isn't Greece it.

We we'd like to see them -- -- only because it holds everything together and it's a lot cheaper to keep Greece and that is to address some of the -- contagion risks of the ball starts rollback raided.

Very diplomatic counsel -- eyes Kaiser thank you so much for joining us appreciate.

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