The European Central Bank sketched out its side of the deal, offering to buy Italy’s and Spain’s bonds on the market as long as the euro governments’ bailout fund makes purchases directly from the two countries’ treasuries and ties them to tough conditions.
ECB President Mario Draghi offered only a glimpse of the new strategy, with the actual interventions weeks or months away and a host of obstacles standing in the way before Europe can claim to be on a path out of the crisis that emerged in Greece in late 2009. Investors looking for a quicker fix pushed down the euro, European stocks and bonds of at-risk countries.
Draghi’s offer to join forces with governments contrasted with the manoeuvring in August 2011 by his predecessor, Jean-Claude Trichet. With Europe’s rescue fund not yet empowered to intervene on bond markets, Trichet ended up going solo in starting the purchases of Italian and Spanish debt.
A bond-buying programme would require Italy and Spain to make austerity and economic-reform commitments -- or potentially only re-state the ones they’ve already made -- and submit to international monitoring. Spain has already gotten over the stigma of relying on outside help by tapping a €100 billion programme to shore up its banks.
Draghi’s pledge took the ECB further away from its roots as a politically autonomous central bank, modelled on Germany’s Bundesbank, with prime responsibility for containing inflation and only a lesser focus on the broader economy and the stability of the banking system.
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