Euro crisis: ECB to meet amid bond intervention hopes

02. 08. 2012

Euro crisis: ECB to meet amid bond intervention hopes

The European Central Bank (ECB) will hold its latest meeting amid much speculation that it will take action to bring down Spain's cost of borrowing.

ECB president Mario Draghi has said he is ready to do "whatever it takes" to support the euro, prompting a rally in shares and the single currency.


Fears that Spain will need a bailout have prompted speculation that the ECB will take unprecedented steps to help.


One commentator told the BBC that it was "crunch time for the euro".


David Llewellyn, vice chairman of the Banking Stakeholder Group at the European Banking Authority, said:

"Expectations are very high, the markets recognise that past measures simply haven't worked.


"Above all if nothing is done to lower and stabilise the borrowing costs of countries like Spain and Italy then their future within the euro must be in question."


Mr Draghi will hold a news conference later on Thursday.


A decision on whether to help Spain will come after the central bank decides on interest rates. In July, the ECB cut its key rate from 1% to 0.75%, a record low for the eurozone.


On Wednesday, the US Federal Reserve took no further steps to boost the economy - as some observers had predicted - but said that it "will provide additional accommodation as needed to promote a stronger economic recovery".


Resume bond-buying?


At a conference in London last week marking the start of the Olympics, Mr Draghi said: "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough."



The scheme - introduced in 2010 - allows the ECB to buy large quantities of government bonds from banks and other financial institutions on the open market.


That, in turn, allows indebted eurozone governments to borrow money at rates much lower than those offered in the commercial bond markets.


The last SMP purchase took place at the end of January. Since then, Mr Draghi has repeatedly reiterated his resistance to large-scale bond purchases.


There is also speculation that the eurozone's current bailout fund - with the ECB as its agent - will buy government bonds at auction to drive down the Spanish government's actual cost of borrowing.


But there is controversy around any such plan as the ECB is forbidden from lending money to European governments under its constitution.


Spain's 10-year yield recently hit a record high of 7.6%.


Greece, Portugal and the Republic of Ireland all had to seek international bailouts when their own implied borrowing costs reached similar levels.


Spain has already received a 100bn euro (£79bn) bailout for its banks - but a full bailout would be even more costly.


Source: BBC News



Euro crisis: ECB to meet amid bond intervention hopes