ECB set to buy up to €1.7tr of national debt

THE European Central Bank could buy up to €1.7 trillion (£1.4 trillion) of securities from troubled Eurozone countries alongside the unprecedented €750bn rescue fund unveiled yesterday.

World equities soared as the ECB started buying bonds on secondary markets, lifting the pressure on Greece and Spain after weeks of hammering by speculators. The move came as Europe unveiled the largest bailout in history, comprising:

• €60bn more for the European Union’s emergency loans fund;

• €440bn of loan guarantees for struggling eurozone members;

• up to €250bn from the International Monetary Fund.

As investors rushed to take on risk and dumped safe haven stocks, French finance minister Christine Lagarde told reporters in Brussels: “The message has got through. The Eurozone will defend its money.”

The FTSE 100 shot up 239.5 points to 5,362.5. The S&P 500 climbed 47.5 points in morning trading to 1,158.4.

The cost of insuring bonds from the Eurozone’s weakest members against default dropped dramatically. Spreads on Greek five-year credit default swaps tightened at the fastest rate on record from 915.6 basis points on Friday to 572.3 basis points, according to CMA Datavision.

Capital Economics estimated the ECB’s bond-buying programme could be worth up to €1.7 trillion – equal to a quarter of the Eurozone’s outstanding debt – based on the Bank of England’s aggressive policy last year.

But the ECB said it would “sterilise” the bond purchasing by selling other assets back into the secondary market to balance liquidity.