El ECB comprara bonos de Italia y Espana.
ECB to 'Actively Implement' Securities Markets Program .Article Comments (40) more in Business ».Email Print Save ↓ More .
.smaller Larger By BRIAN BLACKSTONE
FRANKFURT—The European Central Bank signaled it would purchase government bonds of Italy and Spain on a large scale in the most dramatic escalation of its nearly two-year effort to stem Europe's unfolding debt crisis.
Hours after a rolloer-coaster Friday, Standard & Poor's downgraded the U.S. credit rating. Follow continuing live coverage here and reaction here.
.ECB intervention to prop up Italy and Spain is a watershed in Europe's effort to fight the financial crisis. The central bank has so far insisted that the main responsibility for acting lies with national governments. A decision to buy Italian and Spanish bonds is tantamount to accepting that the euro's member states are unable or unwilling to respond effectively, turning the ECB into the lead firefighter - and the euro zone's lender of last resort. That could change the nature of Europe's monetary union.
The ECB said it will "actively implement" its bond-purchase program, which had been mothballed for more than four months before officials resumed purchases of Irish and Portuguese bonds last week.
The statement, released late Sunday, didn't specifically mention Spain and Italy. But the implication was clear: after more than one year of on-and-off activity in the bond markets of its weakest countries, the ECB is acting to keep the Greek debt crisis from engulfing its larger economies.
The statement singled out Italy and Spain, the region's third and fourth-largest economies, for "new measures and reforms in the areas of fiscal and structural policies."
The ECB move "buys a significant amount of time" for Spain and Italy, and the central bank's statement "clearly points in the direction of an imminent and forceful response," said analysts at Royal Bank of Scotland, in a research note.
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..Sunday's meeting, which began in the early evening via a video conference, promised to be contentious. The 23-member ECB board was already divided along north-south lines on limited purchases of Irish and Portuguese bonds at the ECB's meeting last week. At least three central bankers from Northern Europe, including the ECB's powerful German contingent, resisted the move, the people said.
A decision to expand purchases to Spain and Italy was likely to split along similar lines, with a majority in favor but a German-led faction opposed. Friday's decision by Standard & Poor's to strip the U.S. of its triple-A rating—an action taken after the close of U.S. markets—strengthens the pro-buying faction, given worries about a new bout of contagion sweeping global markets; as does the unenthusiastic reaction in markets to the ECB's decision last week to limit its bond buys to Ireland and Portugal.
Ireland and Portugal, along with Greece, are already under European rescue packages, effectively removing them from private-sector markets for financing.
To meaningfully stem contagion to Spain and Italy, the ECB would have significantly ramp up its bond purchases, a step it has been loath to take. It has purchased less than €80 billion ($114 billion) of Greek, Irish and Portuguese bonds since the program began in May 2010.
Italy and Spain, the euro bloc's third- and fourth-largest economies, together issue roughly €600 billion of government bonds a year. According to BNP Paribas economist Paul Mortimer-Lee, "respectable arguments can be made for €230 [billion] to €400 billion of purchases."
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.Opponents have plenty of ammunition, too. Buying government bonds puts the ECB dangerously close to the realm of fiscal policy, a particular concern in Germany.
Euro-zone politicians engaged in an aggressive campaign over the weekend to spur the ECB to action.
"I am calling first and foremost on the sense of responsibility of the European Central Bank. Guardian of the euro, she must intervene massively on the debt market to avoid the implosion of the zone," French Socialist presidential candidate Martine Aubry wrote in the Libération newspaper.
Such comments put the ECB in an awkward position. Even if it decides to buy Italian and Spanish bonds purely for its own reasons, to improve the functioning of its monetary policy, the decision could be seen as a concession to politicians.
A more practical argument against: whether buying bonds even works as a crisis-fighting tool. Despite ECB purchases of their bonds, Greece, Ireland and Portugal all have junk-bond ratings, in addition to being in EU-IMF rescue bailouts. Greece is on the cusp of default, despite the ECB's help.
The decision could determine the legacy of the ECB's 68-year-old president, Jean-Claude Trichet, who is in the final three months of his eight-year term.
The Frenchman has taken great strides toward making the ECB run in the classic German Bundesbank fashion: rigid adherence to anti-inflation monetary policies and a conservative, balanced-budget approach to fiscal policy while zealously defending the ECB's independence from political pressure.
Mr. Trichet rarely passes up an opportunity to highlight the ECB's record of keeping inflation under 2%, as required by its mandate, since the central bank's creation a dozen years ago. He chafes when the ECB's credibility is questioned.
If the ECB does buy Spanish and Italian bonds, and the move stops the debt crisis at the border of the euro bloc's large economies, then his mix of conservative interest-rate policies with flexibility in responding to crises could prove a lasting template long after he retires.
If it fails, Mr. Trichet will leave with the future of the euro, a project for which he has toiled much of his career, in doubt.
Write to Brian Blackstone at
brian.blackstone@dowjones.com and Margit Feher at
margit.feher@dowjones.com