Brussels, 05/09/2012 (Agence Europe) - On Thursday, the European Central Bank (ECB) will give details about how its bond buy-up programme will work for eurozone nations like Spain and Italy which are introducing huge budget reforms but are still finding it difficult to roll over debt on the money markets at reasonable interest rates (see EUROPE 10669). Before the ECB intervenes, the country in question would have to make an official request for aid from the eurobond bailout funds and agree to a structural adjustment programme (see EUROPE 10681).
The bond-buying proposal involves unlimited purchases of government debt that will be sterilised to assuage concerns about printing money. Bonds maturing in less than three years or so will be bought on the secondary markets. To sterilise the bond purchases, the ECB will remove from the system elsewhere the same amount of money it spends, ensuring the program has a neutral impact on the money supply, explains Bloomberg (quoting anonymous sources). The ECB is expected to refrain from setting a public cap on yields.
The President of the European Council, Herman Van Rompuy, gave full backing on Wednesday to the ECB's plans, saying that the risk premiums charged to some countries are unjustified when one looks at their strong economic foundations and segmentation of the financial markets within the eurozone is reaching such a level that the pursuit of a common monetary policy is becoming difficult. “This cannot go on,” he said, speaking at an annual conference of the heads of EU delegations around the world. On Wednesday afternoon, he met the French president, François Hollande, in Paris, where Hollande pointed out that the European summit in June had decided on a measure that enables the ECB and the European Stability Mechanism to intervene. He hoped that the European summit on 18 and 19 October would decide on sustainable solutions to the problems facing the eurozone at the moment, explained a press release issued by the French president's office after the meeting. (MB/transl.fl)