The president of the European Central Bank, Mario Draghi, was 'person of the year' in financial markets with his July promise to "do whatever it takes" to save the euro. 6 months later, it seems worth checking on the current situation.
The chart thus updates the position on interest rates (green column) in the weaker PIIGS and stronger JUUGS countries versus February 2012 (blue) and February 2011 (red):
• In the PIIGS, volatility has been the key factor. Italy's rates have fallen back to the 4.5% level of 2011, whilst Greece's rates are back at 11% again after its default. Meanwhile, tough austerity programmes in Portugal and Ireland have helped take their rates below 2011 levels. Spain has been the only country where little has changed
• In the JUUGS, stability has instead been the watchword. Rates in the UK, US, Germany and Switzerland are virtually unchanged from a year ago, and much lower than in 2011, whilst Japan's rates were also stable over the past year
The key conclusion is that long-term investors have opted to sit on their hands and do nothing. They simply continue to hold the safest bonds they can find, the JUUGS, on the principle that 'return of capital' is more important than riskily chasing 'return on capital'.
Short-term traders made good money betting on the volatility caused by Draghi's comment. But now they are also waiting to see what - if anything - has really changed. They are unlikely to push rates in the PIIGS lower, unless they see real evidence of progress with the fundamentals.
Sadly, these have not really improved. Draghi admitted after his speech that it was a 'spur of the moment' comment. Crucially, it had not been agreed with the major countries, and it did not therefore indicate a real change in policy.
The key issue is that a monetary union such as the Eurozone requires political and economic union if it is to survive. Wealthy countries such as Germany must be willing to support weaker countries such as the PIIGS, as happened with East Germany after German reunification. Today, this seems less likely than before Draghi spoke.
Equally, the situation in the 2 major PIIGS, Italy and Spain seems likely to get worse rather than better. Berlusconi seems to be gaining support for a return to government in Italy, whilst Rajoy is fighting political scandal over alleged corruption within his party.
Traders are traders, and love volatility. Nobody should now be too surprised if they decide there is more money to be made from pushing the PIIGS' rates higher again, rather than continuing the 'Draghi rally'.