World Top Stories News - ECB hits back at calls for intervention : The European Central Bank hit back at eurozone governments that have called for the bank to intervene more decisively to tackle the sovereign debt crisis, warning of severe economic and social costs if its credibility was put at risk.
Mario Draghi, the new ECB president, insisted that governments must implement agreed reforms to rescue their economies, at the end of a week in which he has come under intense pressure to step up ECB bond market intervention to stem a sharp rise in borrowing costs across the eurozone.
ECB purchases on Friday subdued yields on Italian debt – but market focus shifted to Spain, which holds a general election on Sunday. Spain’s 10-year bond yield has now moved above that of Italy.
Mr Draghi highlighted the failure of governments to make operational the European Union’s bail-out fund, the European Financial Stability Facility, which was launched 18 months ago. “Where is the implementation of these longstanding decisions?” he asked at Frankfurt’s European Banking Congress.
Eurozone leaders have clashed publicly this week over the ECB’s role. The German government and Bundesbank have argued that it has already reached legal limits. But Spain’s leaders have joined French counterparts in urging bolder action, complaining Madrid is being squeezed by record yields in the sovereign bond markets – despite having met EU demands for fiscal austerity and economic reform.
“There is only one solution, and that is that the ECB, once and for all, does what it is supposed to do,” said Alfredo Pérez Rubalcaba, the Socialist candidate in Spain’s election, who is expected to lose to Mariano Rajoy, the Popular party opposition leader.
David Cameron travelled to Berlin on Friday to persuade Angela Merkel, German chancellor, that the ECB should become “lender of last resort” to the most debt-laden governments. “All the institutions of the eurozone have to stand behind the currency and do what is necessary to defend it,” the UK prime minister said. But Ms Merkel warned: “We should not pretend to have power that we don’t have.” The two leaders also disagreed over introducing a financial transaction tax.
ECB guidelines have capped the amounts its dealers can spend on eurozone government bonds over a two-week period at about €20bn, although it has often spent less than that. But the guidelines can be changed easily, and one option would be to set a limit on the spread between interest rates on German and other eurozone government bonds. Bond purchases have totalled €187bn since May last year.
Mr Draghi said ECB credibility in controlling inflation was “the major contribution we can make”. But “losing credibility can happen quickly – and history shows that regaining it has huge economic and social costs”. However, he hinted that fresh help was being considered for the eurozone’s weakened banks. Possible measures include two or three-year liquidity and looser requirements on the collateral banks have to provide when borrowing from the ECB.
His reluctance to expand ECB bond purchases was backed by Martin Blessing, chief executive of Commerzbank. While US economists urged breaking rules in emergencies, “this would be equivalent to temporarily suspending the freedom of the press and speech – to avoid uncertainty in the markets”
Mario Draghi, the new ECB president, insisted that governments must implement agreed reforms to rescue their economies, at the end of a week in which he has come under intense pressure to step up ECB bond market intervention to stem a sharp rise in borrowing costs across the eurozone.
ECB purchases on Friday subdued yields on Italian debt – but market focus shifted to Spain, which holds a general election on Sunday. Spain’s 10-year bond yield has now moved above that of Italy.
Mr Draghi highlighted the failure of governments to make operational the European Union’s bail-out fund, the European Financial Stability Facility, which was launched 18 months ago. “Where is the implementation of these longstanding decisions?” he asked at Frankfurt’s European Banking Congress.
Eurozone leaders have clashed publicly this week over the ECB’s role. The German government and Bundesbank have argued that it has already reached legal limits. But Spain’s leaders have joined French counterparts in urging bolder action, complaining Madrid is being squeezed by record yields in the sovereign bond markets – despite having met EU demands for fiscal austerity and economic reform.
“There is only one solution, and that is that the ECB, once and for all, does what it is supposed to do,” said Alfredo Pérez Rubalcaba, the Socialist candidate in Spain’s election, who is expected to lose to Mariano Rajoy, the Popular party opposition leader.
David Cameron travelled to Berlin on Friday to persuade Angela Merkel, German chancellor, that the ECB should become “lender of last resort” to the most debt-laden governments. “All the institutions of the eurozone have to stand behind the currency and do what is necessary to defend it,” the UK prime minister said. But Ms Merkel warned: “We should not pretend to have power that we don’t have.” The two leaders also disagreed over introducing a financial transaction tax.
ECB guidelines have capped the amounts its dealers can spend on eurozone government bonds over a two-week period at about €20bn, although it has often spent less than that. But the guidelines can be changed easily, and one option would be to set a limit on the spread between interest rates on German and other eurozone government bonds. Bond purchases have totalled €187bn since May last year.
Mr Draghi said ECB credibility in controlling inflation was “the major contribution we can make”. But “losing credibility can happen quickly – and history shows that regaining it has huge economic and social costs”. However, he hinted that fresh help was being considered for the eurozone’s weakened banks. Possible measures include two or three-year liquidity and looser requirements on the collateral banks have to provide when borrowing from the ECB.
His reluctance to expand ECB bond purchases was backed by Martin Blessing, chief executive of Commerzbank. While US economists urged breaking rules in emergencies, “this would be equivalent to temporarily suspending the freedom of the press and speech – to avoid uncertainty in the markets”
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