After Months of Inaction, the ECB Must Act Now to Save Euro
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
The European Central Bank is under pressure to ride to the eurozone’s rescue. According to the Secretary-General of the Organisation for Economic Co-operation and Development, the ECB can and should do more to stem the eurozone crisis because current financial facilities are simply not enough.
Speaking at an international business and political conference in Slovenia, Angel Gurria of the OECD yesterday urged the ECB to provide a “credible signal” to markets and resume bond-buying to help stem financing costs for debt-ridden countries like Spain and Italy.
The European Central Bank is under pressure to ride to the eurozone’s rescue. According to the Secretary-General of the Organisation for Economic Co-operation and Development, the ECB can and should do more to stem the eurozone crisis because current financial facilities are simply not enough.
Speaking at an international business and political conference in Slovenia, Angel Gurria of the OECD yesterday urged the ECB to provide a “credible signal” to markets and resume bond-buying to help stem financing costs for debt-ridden countries like Spain and Italy.
Related News: Spain Mulls EFSF & ECB Bond Market Intervention
Related News: We Don’t Need German Money: Italian PM
He said:
[quote] I think the ECB is the bazooka, the firepower, the muscle, the one that has the capacity to impress upon the markets and say: yes we will. [/quote]
Last month, ECB president Mario Draghi had raised expectations so high by pledging to do “whatever it takes” to preserve the euro, but disappointed many when he failed to enact the promises.
In late July, Draghi hinted that the ECB “may” resume bond purchases albeit under strict conditions.
However, Germany strongly objects to any sort of bond-buying programme, arguing that it could have negative repercussions for the credibility and confidence of both the bank and the currency.
Related News: ECB Will Do “Whatever It Takes” To Save Euro… Just Not Now
Related News: ECB Employees “Overworked” From Handling Crisis: Report
The ECB is expected to meet this Thursday for a policy meeting, and markets are eager for more clarity over Draghi’s plans for the eurozone. As Reuters commented, the ECB meeting is not only a “credibility test” for the bank, but “given the potential of the eurozone’s malaise to cause a global financial crisis and recession … Draghi’s news conference following an ECB policy meeting could set the market tone for the rest of the year.”
Ahead of the meeting, Gurria warned eurozone members:
[quote] You should not put (the euro) at risk, if you have an institution like the ECB, use it to the greatest possible extent. [/quote]
“We have passed the question of moral hazard, these (Italy and Spain) are performing countries, now it is the system that is at stake,” he said.
Noting that Germany had in the past benefitted from the common currency, Gurria said he hopes the German Constitutional Court will approve Europe’s fiscal pact for greater budgetary discipline or its 500 billion euros ($629) permanent bailout fund to support indebted eurozone economies.
The Bundesbank does not have a veto at the ECB, but its opposition could limit the scope and thus the credibility of a bond-buying programme.
Related Story: Europe’s Fate Rests In the Hands of The ECB: Mario Blejer & Eduardo Levy Yeyati
Related Story: Why Germany Has No Choice but to Save Europe: Mohamed El-Erian
