Draghi Says Bond Buying Plans Being Developed

Europe Update: Draghi Says Remarks Not Misinterpreted

Stock and bond markets initially sold off hard on word that the ECB did not announce any concrete plans to combat the ongoing sovereign debt crisis in Europe. However, the selloff was reversed as Draghi made it clear in his press conference that a bond buying program is likely in the development stages.

The source of the marked improvement in stock markets was ECB President Draghi telling reporters that last week's remarks in London were not misinterpreted. Recall that Draghi said last week that “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough."

Draghi said that he was quite happy with the remarks and they should be taken the way they were made.

The ECB President also noted that it is within the ECB’s mandate to address high government bond spreads if they obstruct the transmission of monetary policy.

Mr. Draghi told the press that the ECB will come up with a plan to protect the euro, which could include government bond purchases in the secondary market in coordination with the Eurozone's rescue funds – the EFSF and ESM.

In response to critics who suggest that the ECB does not have the authority to buy bonds, Draghi said, "The Governing Council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective."

According to Draghi, the current “risk premium” in the bonds of Spain and Italy needs to be reduced. He said the bond buying program could be instituted in order to create "the fundamental conditions for such risk premiums to disappear."

Draghi says the ECB will continue to work on unconventional measures to fight the crisis.

Stocks responded positively to Draghi’s remarks. However, comments from Spain’s Prime Minister Rajoy, who said that Spain and Italy do not need to make any additional changes to their public finances, have brought in some additional selling.

Similar reports indicate that Spain has yet to admit it has a problem and will not readily ask for EU aid. Stock moved back down near the lows of the day on this report.

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Other stories on Europe to review:

• ECB Leaves Rates Unchanged
  
• Eurozone PMI's Confirm Ongoing Contraction
  
• 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
  
• EU Leaders Announce Measures To Ease Crisis

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