When Mario Draghi unveiled his unlimited bond-buying scheme last September, the president of the European Central Bank hoped this would reassure investors enough that he would not actually have to use it. So far, his ploy has worked. During the last four months of 2012, €93bn in private money has flowed back into the eurozone periphery.
This wave of cash is making it much easier for governments in the periphery to issue their debt. This month, Spain sold its first 10-year bonds in more than a year, with foreign investors the biggest buyers. Corporate bonds and equities are also back in demand, with investors lured by their attractive valuations.
True, this capital inflow – equivalent to 9 per cent of the combined output of Italy, Spain, Ireland, Portugal and Greece – is less than a quarter of the money that left the periphery in the first eight months of 2012. Investors are still wary as they are mainly buying liquid assets, which can be sold quickly were the tide to turn again. There are few examples of foreign direct investment, which would help to lift the region’s most fragile economies out of deep recession.