Lagarde backs ECB plan to buy Spanish bonds

Tim Wallace
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CHRISTINE Lagarde yesterday pledged to help the European Central Bank (ECB) in designing and monitoring its programme of bond buying, intended to help ease the pressure on indebted governments such as Italy and Spain.

The International Monetary Fund (IMF) boss said those governments had taken enough action on state finances to merit more help from the rest of the EU.

ECB head Mario Draghi announced last week that he will buy government bonds – as long as those states first ask for help from the EU bailout funds and promise to adhere to a programme of reforms.

“It is a country’s decision, in relationship with its member state partners and the institutions of the Eurozone, to decide what is best for itself and for the group to which it belongs,” Lagarde said, explaining that Italy and Spain have taken “strong measures” and that their reform plans are “adequate in and of themselves”.

Economists broadly welcomed the bond-buying plan as a step towards helping governments resolve the crisis.

“We expect the Spanish government to request such a programme by early October at the latest; it could come this month still, and we would imagine that some form of discussions are likely to be underway between the Spanish government, EU and IMF,” said Barclays’ Thomas Harjes.

However, fellow analyst Laurent Fransolet warned that reforms, rather than bond-buying, will be key to ending the crisis – and added that a lack of determination by governments has undermined previous ECB efforts.

“In 2011, it was Italy’s lack of follow through on its commitments that triggered the ECB to exit securities market programme (SMP) purchases, putting pressure on Italian yields and eventually reducing the SMP’s effectiveness,” he said.