FRANKFURT, Germany (AP) — The European Central Bank unveiled its most ambitious plan yet to halt Europe's financial crisis on Thursday with a pledge to buy unlimited amounts of the government bonds of countries struggling to manage their debts.
Large-scale purchases of short-term government bonds would drive up their price and push down their interest rate, or yield, making it less expensive for countries to borrow money.
[...] the ECB's pledge of support came with a caveat: countries that want the central bank to help with their debts must first seek emergency aid from the bailout funds managed by the 17 countries that use the euro and submit their economic policies to the scrutiny of the International Monetary Fund.
Analysts warned that while the ECB plan would provide short-term relief to European countries and financial markets, it doesn't address underlying economic weakness across the region, which could persist for years.
The eurozone's bailout funds could buy bonds as well, but they have concrete limits on their finances set by governments that are putting up taxpayer money — and much of that is already committed anyway to bailouts for Greece, Ireland and Portugal.
Without trying to be a 'party pooper'," said Neil MacKinnon, global macro strategist at VTB Capital, "suppressed borrowing costs certainly provide relief in the short term but do not resolve problems of solvency and debt unsustainability.
Large-scale purchases of short-term government bonds would drive up their price and push down their interest rate, or yield, making it less expensive for countries to borrow money.
[...] the ECB's pledge of support came with a caveat: countries that want the central bank to help with their debts must first seek emergency aid from the bailout funds managed by the 17 countries that use the euro and submit their economic policies to the scrutiny of the International Monetary Fund.
Analysts warned that while the ECB plan would provide short-term relief to European countries and financial markets, it doesn't address underlying economic weakness across the region, which could persist for years.
The eurozone's bailout funds could buy bonds as well, but they have concrete limits on their finances set by governments that are putting up taxpayer money — and much of that is already committed anyway to bailouts for Greece, Ireland and Portugal.
Without trying to be a 'party pooper'," said Neil MacKinnon, global macro strategist at VTB Capital, "suppressed borrowing costs certainly provide relief in the short term but do not resolve problems of solvency and debt unsustainability.
 |
| READ THE ORIGINAL POST AT www.sfgate.com |