Desperate ECB in bid to contain eurozone crisis
The European Central Bank (ECB) signalled last night it was willing to begin massive purchases of Italian and Spanish bonds in an effort to contain the deepening financial crisis in the eurozone.
As the White House grappled with the US's economic troubles after a credit-rating agency reduced its standing on Friday, the ECB's governing council – which includes central bank governors of all the eurozone's 17 member states – held a conference call.
Last night the bank issued a statement saying that it would "actively implement" a bond purchase programme that could boost Spanish and Italian bonds and drive down interest yields that threaten those countries' budgets. The move was designed to help Rome and Madrid fend off market attacks until a strengthened eurozone bailout fund is approved to help them.
There were reports that the ECB members were split down the middle on how to best handle the Italian debt question. German officials in particular had wanted to see tougher austerity measures enforced before the ECB made any commitment to taking on the debt loads.
In a sign of British frustration, George Osborne called for more to be done on a co-ordinated basis to reassure the markets. "By its nature, a global crisis cannot be solved by countries acting alone," the Chancellor said. "Eurozone countries must now act swiftly to deliver on what they have promised. Euro-area institutions need to do whatever is necessary to ensure financial stability."
The ECB did not specify which countries' bonds it would buy in the statement after the conference call but the beneficiaries are expected to be Italy and Spain, say analysts. They are trying to avoid financial collapses like those that forced Greece, Ireland and Portugal to seek bailout loans. As traders returned to their desks in Asia last night, the early signs pointed to a further plunge in stock markets around the world, in response to the turmoil in the eurozone and Standard & Poor's move to cut the US credit rating. Oil prices fell and safe-haven assets including gold rose to new highs in the opening minutes of trading, though markets are expected to be volatile as investors digest the new landscape.
Jean-Claude Trichet, ECB president, was said to want the council to take a final decision on purchasing bonds, which would enable the central bank and eurozone national banks to start buying up Italian debt. Finance ministers and central bankers from the G7 were also due to hold emergency talks before markets open in East Asia in an attempt to forge a global response to the eurozone crisis and ease fears about US creditworthiness.
In an effort to contain the economic crisis in Italy, the Prime Minister, Silvio Berlusconi, announced new measures on Friday aimed at speeding up deficit reduction and financial reform. They included a pledge to balance the budget by 2013 and the introduction of austerity measures a year ahead of schedule. The moves were designed to allay market fears that Rome would be unable to sustain such a high level of debt while economic growth re-mains slow. However, concern that the package would not be enough to calm the markets prompted the ECB to consider intervention.
Spain is similarly affected by high unemployment, high government debts and slow growth. Analysts have argued that investors had expected the ECB to start buying up Italian and Spanish debt after the eurozone leaders' 21 July summit and that its failure to do so sparked the current crisis of confidence.
Yesterday's ECB summit came after a week that saw $2.5 trillion wiped off global stock markets. The shock falls have dramatically increased the pressure on European and US political leaders to reassure investors their governments are capable of cutting debt.
Washington's last-minute default-saving deal will see the US debt limit raised by $2.4trn from $14.3trn. But it has spectacularly failed to impress the credit ratings agencies. On Friday, one of the world's three major ratings agencies, Standard & Poor's, downgraded America's rating from AAA to AA+ in a move that was seen as a major embarrassment for President Obama. Analysts say the revised rating could raise the cost of US government borrowing.
Gene Sperling, a senior White House economic adviser, condemned the revised rating, insisting: "It smacked of an institution starting with a conclusion and shaping any argument to fit it."
Standard & Poor's responded yesterday with a threat to downgrade the US further.
Threat of 'catastrophic cascade of collisions' must be averted, warn scientists
Wellcome Image Awards: The most striking images from the world of science, including breast cancer cells under chemical attack and a photographer’s own kidney stone
Space debris orbiting Earth to be destroyed with giant lasers fired from Australia
Swarm of killer bees sting woman 1,000 times
Oscar Pistorius murder trial: Athlete repeatedly sick as court hears 'graphic details' of Reeva Steenkamp's post-mortem
How climate change helped Genghis Khan: Scientists believe a sudden period of warmer weather allowed the Mongols to invade with such success
Britain's top vet sparks controversy with call for ban on slashing animals' throats in 'ritual' slaughters for halal and kosher meat products
Poor 'live like animals' says Boris's privately educated sister after going on 'poverty safari'
Exclusive: Impact of immigrants on British workers ‘negligible’
Vince Cable: Teachers 'know absolutely nothing' about the world of work
Ukraine crisis: Russia pledges to 'retaliate against sanctions' as Ukrainian president says Crimea vote will not be recognised
The quiet diplomat: Catherine Ashton - recognised and admired in all the world’s troubled countries, yet ridiculed at home
- 1 Australian man Rod Sommerville reacts to bite from deadly snake by reaching for cold beer
- 2 Pakistan vs Paul Smith: Sandal-wearers bemused by famed British designer's attempts to sell traditional Peshawari chappal-style shoes for the distinctly untraditional sum of £300
- 3 North Korea elections: Kim Jong-un wins 100% of the vote
- 4 Steve Irwin’s final words: Cameraman present at death opens up about deadly stingray attack for the first time
- 5 Sharknado 2: Former WWE wrestler Kurt Angle to fight second wave of flying sharks
iJobs Money & Business
£1000 per month: Inspiring Interns: The company works with Tier 1 FTSE 100 Ban...
£35000 - £60000 per annum + Bonus + Benefits: Pro-Recruitment Group: You must ...
£60000 - £80000 per annum + BONUS + BENEFITS: Harrington Starr: A top, City ba...
£40000 per annum: Harrington Starr: Trade Support Officer (Equities, Derivativ...