ECB to hammer out plans to aid weakest lenders
Lahore, Islamabad, Karachi Tuesday, December 14, 2010, Muharram 07, 1432
FC . . . . . . Buying . . . Selling
BRUSSELS: European Union leaders will this week discuss the creation of a permanent mechanism to shore up over-indebted countries as the European Central Bank tries to hammer out plans to aid the region's weakest lenders.
At a summit in Brussels on Dec. 16 and 17, the group will confront investor skepticism about its readiness to stem a sovereign-debt crisis that led to bailouts for Greece and Ireland and threatens to spread. Spain's 10-year bonds fell for the past five sessions and the nation will further test investor appetite for its debt when it sells bonds this week.
"I don't think there's anything they can come up with to settle things down right away," said David Owen, chief European economist at Jefferies International Ltd. in London. "The problems will continue. Markets are very much focusing on the first few weeks of next year when not only sovereigns but banks need to go to the market for a lot of financing." German Finance Minister Wolfgang Schaeuble told ARD Television yesterday he expects an EU agreement on a permanent crisis facility. Meanwhile ECB officials are focusing on how to reduce banks' reliance on emergency liquidity measures, according to comments last week by Governing Council members Mario Draghi and Yves Mersch.
EU officials are considering measures that would allow the region's rescue fund to buy bonds of distressed governments, the Financial Times reported today, citing people involved in the meetings. They are also considering allowing short-term credit lines to nations struggling to borrow but not in need of bailouts, the paper said.
German and French leaders have pledged to do whatever is necessary to defend the currency. The euro's survival is "non-negotiable," requiring budget vigilance and closer economic cooperation to overcome "structural weaknesses" within the region, German Chancellor Angel Merkel and French President Nicolas Sarkozy said on Dec. 10 after a meeting in the German town of Freiburg.
Spanish bonds may fall this week in the run-up to the summit amid speculation auctions may underscore rising concern Europe's debt crisis is deepening. The nation is due to sell bonds maturing in 2020 and 2025 on Dec. 16.
Investors may also focus on Italy, where Prime Minister Silvio Berlusconi faces a noconfidence vote. Lawmakers in Rome begin debating a no-confidence motion at 9 a.m. and the voting, scheduled for tomorrow, will determine whether Italy's richest man can sustain his government, whose term still has two years.
The yield premium on Italy's 10-year debt over comparable German bunds more than doubled this year, reaching a euro-era high of 212 basis points Nov. 30. -PB News