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26th Feb 2024

ECB returns to markets to help Italy and Spain

  • Trichet said governments must stay 'ahead of the curve' (Photo: European Commission)

The European Central Bank (ECB) has decided to go back to markets to buy bonds from troubled eurozone countries after a five-month pause in a bid to stem the crisis from spilling to Italy and Spain.

"I wouldn't be surprised that before the end of this conference you would see something on the market," ECB chief Jean Claude Trichet said during a press conference in Frankfurt on Thursday (4 August) afternoon after the monthly meeting of the bank's governing board.

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"If we intervene, we intervene and we'll publish the amount of what we have done," he added, referring to the bond purchase as a "non-standard measure" aimed to facilitate the flow of money in the 17-country strong eurozone.

He refused to give any details as to the amount and origin of the government bonds to be purchased in the short term.

But traders in London reported that Irish and Portuguese bonds were first in line, with no news of Italian and Spanish purchases.

Trichet acknowledged that the bond-buying move was not backed by all the members of the bank's governing board. But he said there was an "overwhelming majority" in favour. It is the first time since March that the ECB is going to the markets to ease the pressure of the spreading debt crisis.

Trichet also joined calls made earlier by EU commission chief Jose Manuel Barroso for national governments, parliaments and the EU legislature to implement the details of the July deal on a second Greek bailout, which also gives extra powers to the EU bailout fund (EFSF), including that of purchasing bonds on the markets.

"We expect all these decisions taken by leaders in July to be executed fully and in a very effective and rapid fashion," he said. "What has been said by the heads is that they will rapidly finalise negotiations with the European Parliament. We consider it's essential to have a strong rigorous surveillance."

As to Italy and Spain's efforts to resist being drawn into the debt crisis, Trichet insisted that "all governments have to be ahead of the curve. This is of course true for Italy as well as all others."

The 10-year Italian and Spanish bond yields started and finished the press conference at 6.1 percent, still above the six-percent margin considered to be unsustainable.

Market analysts are sceptical that the ECB bond-purchasing move will succeed in halting crisis contagion.

"The track record of the ECB's bond purchasing programme so far is anything but promising. As long as it remains a half-hearted mission ... it will probably not be enough," Carsten Brzeski, a senior economist with ING Belgium said in a statement.

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