I quote President Draghi’s promise that “Within [its] mandate, the ECB is ready to do whatever it takes to preserve the euro”.3 OMT is a conditional promise to buy in the secondary market without limit government bonds of selected Euro area countries. OMT has worked and remarkably, there has so far not been any need to activate the program.
Finally, there is contagion to U.S financial markets. Let me first elaborate on the exchange rate channel I just mentioned. The traditional determinants of exchange rates—that is, differentials in expected rates of return—apply to the United States as to other countries. But the U.S. economy is different because of the special role of U.S. government bonds as global safe assets.