Don’t play Jean-Claude Trichet at poker. He has successfully called the bluff of that high-stakes gambler, Mr Market. After raising the prospect of a QE2-style effort to launch big unsterilised bond purchases, the European Central Bank president explicitly ruled out quantitative easing, and the market fell into line. After a wild week, Spain’s borrowing costs are slightly cheaper than when the week started. Portuguese two-year yields tightened by 78 basis points on Thursday alone. The euro is heading upwards once more.
Sadly, none of this means that Mr Trichet has ended the eurozone sovereign crisis. The underlying creditworthiness of the bloc’s peripheral states remains far too stretched to say that.
Indeed, the market turnround may be an advertisement for more discretion – and hypocrisy – by central bankers. Mr Trichet talked tough but never put a number on the ECB’s bond purchases, which will carry on for four more months. They will be “commensurate to what we . . . see as disruption”. Buying commensurate to the disruption at the beginning of this week would have been heavy indeed. Word on the street is the ECB has already bought aggressively. Markets may not have got everything they wanted, but they got a lot.