THE DISTILLERY: Mario's promise

Jotters dig in on Mario Draghi's euro pledge, seeing limited options for the ECB chief.

Key European leaders have rallied behind a promise by European Central Bank president Mario Draghi that he would do whatever he could to keep Europe from falling apart and, judging by market rallies across the world, investors seemed to like what they heard. However, Australia's scribes are harder to impress: one jotter thinks he's hear this promise before, while another doubts the ECB has the tools necessary to truly resolve the continent's crisis. Meanwhile, more ink is spilled over TPG's tilt at Billabong and dire predictions about the end of Australia's mining boom. 

But first, Fairfax's Malcolm Maiden takes aim at Draghi's comment that he is "ready to do what it takes to preserve the euro". Maiden runs through the many instances where investors have been told the same thing during the crisis, worrying that we'll continue to suffer from inaction at the ECB.

"There was no sign yesterday of ECB bond buying, and there are unanswered questions about how a major ECB intervention would work. Draghi said again that the ECB needed to stay within EU Treaty obligations that prohibit it from directly financing sovereigns, for example. … It's also not clear how much buying the ECB could afford, even if it prints money in a version of the US Federal Reserve's quantitative easing strategy. Central bank buying operations in the past have tended to provide medium-term yield relief in distressed markets rather than a permanent solution. …If Draghi's hints do not lead to some serious action next week the markets will slide again, and could slide hard."

Also on Europe, The Australian Financial Review's Alan Mitchell says the banking reforms agreed to in principle last month are a step in the right direction, "but financial market investors now want to know what, if anything, the euro area leaders plan to do about fiscal integration."

"As the IMF says, the euro area needs fiscal integration. Like many others, the IMF is in favour of common debt – euro bonds – combined with strong fiscal governance arrangements to contain the problem of moral hazard. …But of course it is not as simple as that. There is the important question of sovereignty, for which no country’s citizens were prepared when they joined the euro. And Germany and the other northern states are terrified of being stuck with the cost of supporting a permanently unreformed south."

Meanwhile, writing in The Herald Sun, Terry McCrann doesn't think there's much at all the ECB can do to promote sustainable growth.

"The ECB can print hundreds of billions of euros, bail out European banks and national governments. It can't really revitalise the European economy. Arguably that's impossible, in every event. But it certainly can't be done without doing exactly what Draghi says he will fight: breaking up the euro. So the boost to markets out of Europe last week could be extended into a very long period. But it can't build really sustainable recovery. That depends on what happens in the US and, even more so, China. Because China is the real swing factor for the world economy and indirectly also for global investments."

Other commentators look back to Billabong's agreement to allow TPG access into its data room, on the back of a reduced $695 million bid from the private equity giant. The Australian's Richard Gluyas reckons Billabong's "capitulation" came down to its board not having a choice after it fumbled TPG's initial approach. But, more generally, he says "boards are under increasing pressure to engage with private equity. But that's the way it should be. Control of a company is – and always should be – a marketable commodity." 

And no matter what Billabong thinks of the pricing of TPG's offer, The Australian Financial Review's Tony Boyd says the target "Is on the road to losing independence."

Elsewhere, there are more concerns about the collapse of the price of iron ore, which last week breached its $US120-a-tonne floor. At The Australian Financial Review, Matthew Stevens says it's a wakeup call for miners and their host governments — "that means embracing the productivity challenge at the heart of the recovery of our competitive edge." The Australian's David Uren fears oversupply could drive the price of iron ore down to $65 a tonne, while Fairfax's Ian Verrender is more upbeat, arguing the end of a boom in investment will herald the beginning of a boom in exports. 

Finally, Fairfax's Adele Ferguson spent the weekend reading a report by research house PIR, which has found real estate investment trusts continue to represent half the listed and unlisted property sector's assets under management. However, unlisted wholesale funds rose to represent a record 29 per cent of the sector. Ferguson then runs through those funding advantages and reports industry concerns that REITs are missing out on some of the best properties in capital cities.

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