ECB Lets Words Calm Debt Markets

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ECB Lets Words Calm Debt Markets

Lull in Bond-Buying Program Comes as Rumors of Substantial Purchases Help Stabilize Euro Zone

FRANKFURT – The European Central Bank and national central banks in the euro zone stepped up purchases of euro-zone government bonds last week but the total amount fell short of expectations, underlining the ECB’s reluctance to vastly expand support for the bond market.

The ECB doesn’t break down the debt-purchase figures by country or maturity, but bond dealers say that the ECB bought Greek, Irish and Portuguese government debt. The ECB said that as a consequence of its purchases it will drain €72 billion from the market at its weekly auction of one-week deposits on Tuesday.
But some governments in the euro zone want the European Union to take more decisive action to avert financial turmoil from spreading to Portugal, Spain and beyond. One option would be to increase the lending capacity of the European Financial Stability Facility, as the bailout fund is called, without increasing the €440 billion worth of government guarantees that back loans issued by the fund.
Raising the guarantee size of the EFSF will also be debated, although Germany and a number of other governments remain opposed for now. But officials note that the German position could change if sovereign debt yields start rising again. „There is an ongoing debate about the fund, about its size, its flexibility, possible uses,” said Amadeu Altafaj Tardio, the European Commission’s spokesman on economic affairs. „It’s quite an open debate at this stage.”

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