The European Central Bank stepped up bond purchases last week as the debt crisis worsened.
The Frankfurt-based ECB said it settled 7.99 billion euros ($10.8 billion) of bond purchases in the week through Nov. 18, up from 4.48 billion euros the previous week. Some 131 million euros of acquired bonds matured. The central bank will take seven-day term deposits tomorrow to absorb the 194.5 billion euros of liquidity created since its bond program started on May 10 last year, a practice it employs to ensure the purchases don’t fuel inflation.
Spanish bond yields soared last week, following a surge in Italian borrowing costs the week before. In a sign the debt crisis is spreading to the core of the euro area, spreads between French, Austrian and Belgian yields and the German benchmark also widened to the most since the euro was created in 1999. ECB policy makers have pushed back against investors and governments who want them to backstop the currency bloc and combat the crisis by significantly increasingly their bond- market intervention.
Governing Council member Ewald Nowotny said today that euro-area governments cannot rely on the ECB to solve the debt crisis by printing money. ECB President Mario Draghi said on Nov. 18 the ECB would quickly lose credibility if it departed from its primary role of keeping prices stable, and he pressed governments to start implementing their pledges to bolster the region’s rescue fund.
The ECB started buying Italian and Spanish government bonds in August to prevent the fiscal crisis from spreading across the region. The central bank said in its monthly report on Nov. 10 that all unconventional measures are “temporary in nature.”
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