Economic Crisis:

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.

Start your day with The Independent, sign up for daily news emails
News
The guide, since withdrawn, used illustrations and text to help people understand the court process (Getty)
newsMinistry of Justice gets law 'terribly wrong' in its guide to courts
News
Bobbi Kristina Brown with her mother Whitney Houston in 2011
people
News
Starting the day with a three-egg omelette could make people more charitable, according to new research
scienceFeed someone a big omelette, and they may give twice as much, thanks to a compound in the eggs
News
Top Gun actor Val Kilmer lost his small claims court battle in Van Nuys with the landlord of his Malibu mansion to get back his deposit after wallpapering over the kitchen cabinets
people
PROMOTED VIDEO
News
The actress Geraldine McEwan was perhaps best known for playing Agatha Christie's detective, Miss Marple (Rex)
peopleShe won a Bafta in 1991 for her role in Oranges Are Not The Only Fruit
News
newsPatrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
News
Robert Fraser, aka Groovy Bob
peopleA new show honours Robert Fraser, one of the era's forgotten players
Life and Style
Torsten Sherwood's Noook is a simple construction toy for creating mini-architecture
tech
Sport
David Silva celebrates with Sergio Aguero after equalising against Chelsea
footballChelsea 1 Manchester City 1
News
i100
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

As in 1942, Germany must show restraint over Greece

As in 1942, Germany must show restraint over Greece

Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
Britain's widening poverty gap should be causing outrage at the start of the election campaign

The short stroll that should be our walk of shame

Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

Homeless Veterans appeal

The rise of the working poor: when having a job cannot prevent poverty
Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

Prince Charles the saviour of the nation?

A new book highlights concerns about how political he will be when he eventually becomes king
How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

How books can defeat Isis

Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
Judith Hackitt: The myths of elf 'n' safety

Judith Hackitt: The myths of elf 'n' safety

She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
The open loathing between Barack Obama and Benjamin Netanyahu just got worse

The open loathing between Obama and Netanyahu just got worse

The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
French chefs get 'le huff' as nation slips down global cuisine rankings

French chefs get 'le huff' as nation slips down global cuisine rankings

Fury at British best restaurants survey sees French magazine produce a rival list
Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

Young carers to make dance debut

What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

Design Council's 70th anniversary

Four of the most intriguing prototypes from Ones to Watch
Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

Dame Harriet Walter interview

The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
Art should not be a slave to the ideas driving it

Art should not be a slave to the ideas driving it

Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
Bill Granger recipes: Our chef's winter salads will make you feel energised through February

Bill Granger's winter salads

Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
England vs Wales: Cool head George Ford ready to put out dragon fire

George Ford: Cool head ready to put out dragon fire

No 10’s calmness under pressure will be key for England in Cardiff
Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

Michael Calvin's Last Word

Time for Old Firm to put aside bigotry and forge new links