Thursday, August 2, 2012

Euro central bank head calls for government action

FRANKFURT — Financial markets appeared unruffled by an invective from European Central Bank head Mario Draghi. He said the bank is ready to intervene in the bond market to drive down countries' high borrowing rates, and urged European leaders to get their bailout fund ready to intervene as well.
The bank could buy bonds if the borrowing rates stop the ECB in its efforts to spread its low interest rates throughout the 17 countries that use the currency, Mr. Draghi said today.
The move could lower the borrowing rates that are threatening to push Spain and Italy into financial disaster.
The ECB "may undertake outright open market operations of a size adequate to reach its objective," Draghi said.
Draghi announced no immediate action. "Over the coming weeks, we will design the appropriate modalities for such policy measures."
An earlier ECB intervention was not big enough to impress bond markets. The effort, which began in May 2010, has been left unused since March because it did not decisively lower borrowing costs.
Highlights from the speech:
— "What is the meaning of irreversibility? Irreversibility means it cannot be reversed — so you don't go back to the lire or the drachma.... That's what means. It stays. It is pointless to bet against the euro. It is pointless to go short on the euro. That's the message. It's pointless because the euro will stay."
— "It is within our mandate to do whatever is within our power to preserve the euro as a stable currency."
— "The eurozone is a strong place in the world and the euro is a strong currency, and it's irreversible. That's the substance of the speech I gave in London. Today, we're not rowing back. There was an endorsement by the governing council of the speech. "
— "We don't plan any presentation of our monetary policy discussions to the heads of state. It's not been discussed. The point is, we are independent and we don't foresee presentations to the heads of state of our monetary policy measures."
— "Monetary policy will not be enough to achieve these objectives unless there is action by governments... Action by the government, by the euro-area level, is as essential for repairing monetary transmission channels as is appropriate action on our side."

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