Last night's action in Europe highlights that despite very low yields, quick developments can destabilise markets and lead to some sharp losses

Last night's action in Europe highlights that despite very low yields, quick developments can destabilise markets and lead to some sharp losses. Draghi's 'whatever it takes' speech may have stabilised market sentiment in 2012, but it led to complacency in solving the European debt crisis. The problem with his claim is that it can be said only once, and then markets will expect action. Indeed, his 'talk' approach has failed, as the basic problem in Europe has also been the state of bank balance sheets and the amount of government and household debt. In 2009, the US solved its bank problem first (equity injection), households second (record low interest rates/QE) and the government's last (through growth). Europe has designed its solution the wrong way around by trying to fix government first (through austerity), then households (low rates, but no QE) and banks have never been solved at all. (VIEW LINK)