The ECB's 'whatever it takes' pledge and Spain's recovery

With Spanish 10-year bond yields trading above 7.5% in July 2012 and investors openly pricing in a possible euro break-up, ECB president Mario Draghi told a London investor conference on 26 July 2012 that the ECB was ready to do, in his words, whatever it takes to preserve the euro, adding that it would be enough. The announcement, followed in September by the Outright Monetary Transactions program allowing unlimited purchases of distressed members' sovereign bonds, reversed the panic almost immediately: Spanish yields fell from above 7.5% to under 6% within weeks and continued declining to roughly 1.6% by 2015. The credibility of that backstop gave Madrid room to complete its 2012 bank recapitalization and begin unwinding the crisis without a full sovereign bailout. Spain's economy returned to growth in the second half of 2013, expanded 1.4% in 2014 and 3.8% in 2015, among the fastest in the euro area, while unemployment, which had peaked near 27%, began a sustained decline. The episode illustrates how, for a eurozone member, the critical monetary-policy actor shaping the recovery was the ECB rather than Banco de España alone.