European Central Bank sucks up €22bn in debt

Julian Harris
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THE European Central Bank (ECB) exceeded expectations by purchasing €22bn (£19.4bn) worth of debt from troubled Eurozone governments last week.

The ECB announced the figure yesterday, which surpasses even the €16.5bn in bonds that it purchased in May 2010, when it intervened in a bid to save the Greek government.

The ECB reluctantly entered the markets after the yields on Italian and Spanish debts rose earlier in the month.

European governments still have to ratify the forthcoming interventions from the European Financial Stability Facility (EFSF), which is hoped to kick in by the beginning of October.

And today German chancellor Angela Merkel meets with French president Nicolas Sarkozy in a bid to save the single currency.

“I think they’ll come up with something,” said Andrew Lilico of Europe Economics. “With these interventions – they’re not in the last chance salon yet, but they are heading towards it.”

The ECB reactivated the programme after leaving it dormant for 19 weeks, and despite opposition from a four-man group on its policymaking Governing Council, led by Germans Jens Weidmann and Juergen Stark.

The four dissenters were concerned about the ECB moving into the fiscal policy arena but the majority on the Governing Council felt obliged to act as Eurozone governments had failed to come up with adequate plans to stem the spread of the crisis.

“We estimate that the ECB last week purchased around €14bn of Italian bonds, €6bn of Spanish bonds and a combined €2bn of Portuguese and Irish bonds,” said economist Tobias Blattner of Daiwa Capital Markets in a note.