New Bond-Buying Push Aims to End Euro Crisis
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iStockphoto/Thinkstock(FRANKFURT, Germany) — The president of the European Central Bank, Mario Draghi, announced a new program Thursday to make unlimited purchases of government bonds. The policy is a bold attempt to cut the interest rates of distressed nations, and put an end to speculation of a euro currency breakup.
As the plan was announced, yields of Spanish and Italian debt stayed lower than they were last month. Wall Street gave a thumbs up to the Euro moves — after the first hour of trading, the Dow Jones index was up more nearly 200 points.
Draghi said the program, called Outright Monetary Transactions, “will enable us to address severe distortions in government bond markets.” He told journalists the new measures are a “fully effective backstop” against volatility.
The run-up in interest rates, he says, have been caused by “unfounded fears on the part of investors of the reversibility of the euro.”
Speaking in Frankfurt, Germany, Draghi said the size of the bond purchases would be made public every week, while a detailed account by country will be released monthly.
Draghi said European governments needed to continue with deficit reductions and labor market reforms. Responding to German opposition to central bank bond purchases, he said if a bailed-out country fails to meet its fiscal targets, the bank could stop buying its bonds.
The ECB is forecasting the recession in the eurozone will continue with the economy shrinking by 0.4 percent this year before starting to grow in 2013.
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