Thursday

11th Aug 2022

Eurozone bank buys record €22bn in bonds to contain euro crisis

  • Nicolas Sarkozy and Angela Merkel are meeting in Paris today (Photo: consilium.eu)

The European Central Bank last week spent a record €22bn buying euro-zone government bonds in a bid to prevent the eurozone debt crisis spreading, a move that is likely to fuel debate on the creation of eurobonds.

The buying spree represented the most the central bank has spent since it first began bond-buying in May last year in response to the Greek debt crisis.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

It also shows the scale of the challenge faced by the bank in keeping down the borrowing costs of Italy and Spain, the eurozone’s third and fourth largest economies.

The bond buyback programme - supposed to be a temporary measure while politicians attempt to solve the eurozone’s problems – is controversial among ECB policy-makers.

It is most strongly opposed by Jens Weidmann and Juergen Stark, German members of the bank’s governing council, who feel the bank is moving into political territory.

However, the bank has felt itself compelled to move as various agreements by EU politicians over recent months have failed to draw a line under the crisis.

A July deal to allow the eurozone rescue fund to buy bonds – which the ECB keenly wants to come into force – has first to be ratified by member states.

The extent of last week’s purchase, revealed by the bank yesterday, came on the eve of a meeting between German Chancellor Angela Merkel and French President Nicolas Sarkozy in Paris today (16 August).

Last week Sarkozy said the meeting would result in “extremely ambitious euro zone governance proposals”.

Eurobonds

The most talked-about issue – though informally – is the mutualisation of eurozone debt through the creation of eurobonds.

Germany has officially said this is a no-go area and will not be discussed during today’s meeting.

"The German government has said on numerous occasions that it does not believe Eurobonds make sense and that's why they will not play any role at tomorrow's meeting," spokesman Steffen Seibert said on Monday.

However, behind the scenes the issue is being increasingly discussed.

An article on Sunday in German daily Die Welt indicated that Berlin was coming around to the idea of eurobonds and cited an anonymous government source as saying that maintaining the eurozone with all its members is an “absolute priority” for Germany.

The idea also has some support from industry.

The head of the German export Group BGA said Eurobonds are needed to avoid a global depression.

"The alternative is the markets attack Italy, then France, we lose our AAA rating and then it's our turn. This is a downward spiral that would lead to a worldwide depression," Anton Boerner told Reuters news agency.

"What have we achieved then?" Boerner said. "We'll end up paying three times over. This way we pay just once."

Leading economists share the same view.

“Unless some framework like European bonds are promoted, it's going to be very difficult for the troubled eurozone countries to be able to meet their financial requirements,” Nobel Prize-winning economist Joseph Stiglitz told the BBC’s Newsnight programme on Monday.

Eurobonds would lower the borrowing costs of struggling eurozone countries but raise the costs of Germany and other countries currently considered a safe bet by markets – something that many politicians in northern better-off eurozone countries balk at.

It would also likely imply further significant EU fiscal integration – currently a topic of heated debate in Germany – the eurozone’s paymaster.

Merkel and Sarkozy meet as Berlin rejects eurobonds

The leaders of France and Germany are meeting on Tuesday in a further attempt to stem the eurozone debt crisis following last week’s strong market turbulence, but Berlin has ruled out any mutualisation of euro countries’ debt.

Germany no longer immune to crisis

Germany had significant trouble offloading its bonds on Thursday in a sign that the eurozone crisis has spread to the very heart of Europe.

Brazil pitches itself as answer to Ukraine war food shortages

Brazilian president Jair Bolsonaro is pitching his Latin American country as the answer to the world food crisis following the war in Ukraine. The traditional wheat importer has now exported three million tonnes of the grain so far in 2022.

Opinion

Exploiting the Ukraine crisis for Big Business

From food policy to climate change, corporate lobbyists are exploiting the Ukraine crisis to try to slash legislation that gets in the way of profit. But this is only making things worse.

News in Brief

  1. Sweden overtakes France as EU's top power exporter
  2. Italy's far-right star in European charm offensive
  3. Another migrant tragedy claims 50 lives in Greek waters
  4. Russia hits area near town with 120 rockets, says Ukraine
  5. UN expects more ships to get Ukrainian grain out
  6. Greece to end bailout-era oversight
  7. Denmark to train Ukrainian soldiers in urban warfare
  8. Russian helicopter flies into Estonia's airspace

Stakeholders' Highlights

  1. EFBWW – EFBH – FETBBConstruction workers can check wages and working conditions in 36 countries
  2. Nordic Council of MinistersNordic and Canadian ministers join forces to combat harmful content online
  3. European Centre for Press and Media FreedomEuropean Anti-SLAPP Conference 2022
  4. Nordic Council of MinistersNordic ministers write to EU about new food labelling
  5. Nordic Council of MinistersEmerging journalists from the Nordics and Canada report the facts of the climate crisis
  6. Council of the EUEU: new rules on corporate sustainability reporting

Latest News

  1. Russian coal embargo kicks in, as EU energy bills surge
  2. Only Western unity can stop Iran hostage-diplomacy
  3. Kosovo PM warns of renewed conflict with Serbia
  4. EU Commission shrugs off Polish threats on rule-of-law
  5. EU urged to stop issuing tourist visas to Russians
  6. Russia puts EU in nuclear-energy paradox
  7. Almost two-thirds of Europe in danger of drought
  8. West needs to counter Russia in Africa, but how?

Join EUobserver

Support quality EU news

Join us