ECB Reportedly Readying Plans to Buy Italian/Spanish BondsJuly 27, 2012 @ 8:03 AM EST
Europe Update: ECB Reportedly Preparing to Buy Italian/Spanish Debt
French newspaper Le Monde reported Friday that Eurozone governments and the ECB are preparing a joint program to intervene in the bond market. The goal would be to bring down Spanish and Italian borrowing costs. Citing unnamed sources, the paper said that the central bank was willing to participate in the intervention on the condition that governments agreed to use the Eurozone's bailout mechanism.
Under such a plan, first the EFSF and then the ESM would buy Spanish and Italian debt on the primary market. Then the ECB would reactivate its bond buying program (SMP) and focus on secondary market purchases.
The article also discussed the possibility of the ECB providing a banking license for the ESM. According to the article, French President Hollande and German Chancellor Merkel will speak by phone at 1 pm local time today to discuss the matter.
However, in a separate report, Dow Jones noted that a Bundesbank spokesman said on Friday that Germany's central bank remains opposed to additional bond purchases by the ECB. The spokesman reiterated the bank's worry that such a plan would create false incentives for those governments with too much debt.
The spokesman added that the Bundesbank is not against using the EFSF to address the spike in sovereign borrowing costs on the periphery.
Others remain skeptical of Draghi’s plans. Bloomberg reported Friday that ECB President Draghi may have boxed himself into a corner after hinting at another round of central bank bond buying in his comments on Thursday. The article discussed how Draghi will face deep disappointment in the market if he fails to deliver, while also highlighting the continued opposition to the SMP by Germany and German central bankers.
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Other stories on Europe to review:
ECB To Do 'Whatever It Takes' to Save Euro
Spain Enters Recession in Q2
Industrial Production Down -2.8%
EU to Jumpstart Loans to Spanish Banks
Germany's Industrial Production Up in June
Bank of England Launches 3rd Round of QE
European PMI's Show Some Improvement
EU Leaders Announce Measures To Ease Crisis
Greece Has Formed a Government
- Spanish Banks To Get 100 Billion Bailout
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iShares Italy - Last 12 Month
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