Saturday 25 November 2017

ECB split on bond buying as euro crisis hits both Italy and Spain

Central bank

Donal O'Donovan and Laura Noonan

The ECB was reported to be embroiled in internal and external disputes last night as the Frankfurt-based bank grappled with an escalating crisis.

Several of its governing council members were reported to be opposed to the bank reactivating its bond-buying programme, which may soon be extended to Spain and Italy.

But other reports suggested that the ECB was trying to directly pressure Italy to fast track specific welfare reforms, before buying Italian bonds. Yields on Irish and Portuguese bonds have come down after the ECB purchased some of these securities on the secondary market.

While none of these reports could be confirmed, the outcome appeared to be damaging for the bank, which will get a new president within weeks to replace Jean Claude Trichet, the incumbent.

Yesterday, it emerged that four of the ECB's governing council members -- led by German central banker Jens Weidmann and the ECB's German-born chief economist Juergen Stark -- had argued against the reactivation of the bond-purchase programme.


The news followed Mr Trichet's attempts to downplay divisions in the ECB over the re-entry to bond markets, as he insisted on Thursday that while the decision had not been unanimous it had been taken by the "overwhelming majority".

"In all governing councils . . . (it is normal) to have decisions from time to time by majority," he told reporters in Frankfurt, as traders reported the ECB had begun snapping up markets.

Mr Trichet also raised eyebrows by publicly confirming that the ECB was actively buying -- something the central bank doesn't typically do for fear of moving the market.

Reuters meanwhile reported the bank is demanding that Italian Prime Minister Silvio Berlusconi commit to fast tracking specific welfare reforms and a constitutional amendment enshrining a fiscal rule before it buys Italian bonds. They said the ECB had agreed in principle on Thursday to buy Italian and Spanish bonds if structural reforms were brought forward.

Irish Independent

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