ECB to ask for more cash to buy up bonds

The European Central Bank (ECB) is to ask for more cash to aid in its battle against the spread of the Eurozone crisis.

In its governing council meeting today and tomorrow, the bank will discuss whether to ask for a capital hike.

With Germany, now seen as the Eurozone’s paymaster, already indicating that it would back an increase in the bank’s capital, it is likely to have its request granted.

The move would be a departure from Germany’s stance on other measures touted as possible solutions to the Eurozone crisis.

Chanceller Angela Merkel has blocked other extraordinary measures such as the issuance of Eurozone-wide bonds, which was called for by the Luxembourg finance minister, or an increase in the size of the Eurozone’s €440bn (£373bn) bailout fund.

As for what the ECB will do with the extra cash, a German official said: “I imagine the ECB would hope to strengthen its basis in order to show the markets that it was well capitalised, if for example, it wanted to buy additional sovereign bonds.”

The ECB was forced to resume its special bond-purchasing programme last month as gilt yields spiked to record highs and threatened to tip the Eurozone into chaos.

It bought €2.67bn of bonds on the secondary market last week in an effort to keep government borrowing costs down, but it has been reluctant to relaunch the programme on the same scale as earlier in the year.