European Central Bank (ECB) president Draghi readies bond buying plan but offers no specifics

Nathan Andrada – Fourth Estate Cooperative Contributor

Frankfurt, Germany (4E) – European Central Bank (ECB) president Mario Draghi on Thursday revealed the possibility of the ECB intervening in the bond market to battle the crisis, although he never offered any concrete action.

People expecting for a grand solution were left disappointed by Draghi’s statement in the news conference after the monthly meeting of ECB’s governing council. European stock markets declined, the euro lost ground against the major currencies, and spreads widened for several sovereign debt after the announcement.

The ECB also kept its benchmark interest rate steady at 0.75 per cent, wrapping up a week where policymakers mostly remained inactive after the Fed and the Bank of England generally remained silent.

Anticipation grew following the ECB’s 23-nation governing council meeting last week where Draghi said in a speech that the body will do “whatever it takes to preserve the euro,” resulting to wave of speculation of a major announcement.

Draghi, nevertheless, made some announcements regarding changes in ECB policy including the bank’s plans to intervene in sovereign bond markets aimed to keep borrowing costs down for some euro zone members, and to allay fears in the markets that the currency bloc will break up.

He emphasized, however, that governments must take the initiative in asking for formal assistance program from the EU’s bailout funds — the EFSF and ESM — and only then the ECB can act.

Despite the hesitation in laying out specific measures, Draghi’s statement this time around was noticeably stronger than in the previous instances suggesting ECB action could happen anytime soon. According to him, ECB’s committees are in the process of creating the parameters for the bond buying program that is sizable enough “to reach its objective.”

In recent months, the European debt crisis has reached a new level when a number of large economies such as Spain and Italy saw their interest rates soar, making it expensive for these economies to borrow. Draghi has expressed his concerns with this pattern of increasing bond yields and it effects to the economy.

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