ECB president Mario Draghi raises possibility of 3-year government bond purchases

Nathan Andrada – Fourth Estate Cooperative Contributor

Brussels, Belgium (4E) – European Central Bank (ECB) president Mario Draghi has once again made remarks that support a move by the bank to help struggling euro zone countries through purchase of government bonds that have maturity of three years or less.

Several European MPs have revealed that Draghi told them that it is the responsibility of the ECB to intervene if needed. Draghi is expected to make further announcements on Thursday about details on possible ECB intervention to the ease the pressure on economies struggling with debt.

During a closed-door session at the EU Parliament in Brussels on Monday, Draghi hinted on the possibility of buying short-term bonds since he believes it is not considered as state financing, therefore it is not a violation of the treaty and possible under the present legal framework.

Draghi, however, has not made any specific reference as to what maturities of bonds the central bank might consider buying. Last month, he stated that the focus of ECB’s bond purchases will be on shorter-dated debt since it comes within the band of “classical monetary-policy instruments.”

Based on the treaties signed between EU members, the ECB is not allowed to finance member-governments, citing inflationary pressures. This rule has become a major constraint for the ECB while central banks in the U.S. and UK have used billions of dollars and punds in government bond purchases in the past several years.

Data released on Monday shows that the past six months have been a quite time for the ECB in terms of government bonds purchases. In 2010, the central bank through its Securities Market Programme (SMP) injected massive amount of funds to support countries in fiscal crisis.

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