ECB poised to buy bonds — Draghi
EUROPEAN Central Bank (ECB) president Mario Draghi said yesterday the bank was ready to start buying government bonds once the necessary conditions were fulfilled by any countries needing assistance.
The ECB is ready to undertake outright monetary transactions (OMT) “once all the prerequisites are in place”, Mr Draghi said in Ljubljana, Slovenia, after policy makers left the benchmark interest rate at a historic low of 0.75%. The plan had “helped to alleviate tensions over the past few weeks”.
“It is now essential that governments continue to implement the necessary steps to reduce both fiscal and structural imbalances,” he said.
A month after Mr Draghi unveiled the bond-purchase plan to reduce yields on government debt, Spain, the country most likely to take up the offer, is still mulling whether it wants to accept the conditions attached.
Meanwhile, the eurozone economy probably entered a recession in the third quarter as the sovereign debt crisis damped spending and investment.
“Economic growth in the euro area is expected to remain weak, with ongoing tensions in some euro-area financial markets and high uncertainty still weighing on confidence and sentiment,” Mr Draghi said.
Inflation should drop below the ECB’s 2% limit next year.
The euro extended gains as Mr Draghi spoke, rising to $1.2992 for a 0.7% advance on the day. Spanish and Italian bonds were little changed, with the yield on Spain’s 10-year debt trading at 5.773% in Ljubljana. Italian 10-year bonds yielded 5.058%.
Separately, the Bank of England held its bond-purchase target at £375bn and kept its key rate at 0.5%. Denmark’s central bank was expected yesterday to keep its deposit rate below zero for the rest of the year.
Under Mr Draghi’s OMT plan, a country must make a formal request to the bailout fund to buy its debt on the primary market before the ECB considers buying bonds on the secondary market.
Italian Prime Minister Mario Monti cautioned last week that aid should not hinge on more conditions than leaders already signed up to and the International Monetary Fund should not need to police it.
Mr Draghi said conditions for a bailout did not have to be punitive. Mr Draghi praised Spain for making “significant progress” in addressing its banking crisis. Earlier, Spain sold €3.99bn of two-, three- and five-year securities yesterday.
Spain sold three-year notes at an average yield of 3.956%, up from 3.845% at the previous sale in September.
On Greece, Mr Draghi rejected the suggestion that the ECB would participate in any further restructuring of Greek government bonds. “We have said several times that any restructuring of our holdings would qualify as monetary financing,” he said.
While the ECB waits on Spain, the eurozone economy is faltering. Manufacturing shrank for a 14th straight month last month and consumer confidence also declined. The ECB last month forecast a deeper economic contraction for this year than it did three months earlier, saying gross domestic product will drop 0.4% instead of 0.1%.
According to a Bloomberg survey, a majority of economists forecast the ECB will cut its benchmark rate in December.
Greek police clashed with protesting shipyard workers who stormed the defence ministry complex in Athens yesterday demanding back pay that they said they were owed.
About 250 workers from the Hellenic Skaramangas shipyard forced their way into the complex by pulling up a shutter and stood in the ministry’s grounds. They demanded solutions and not job losses. Bloomberg, Reuters