European Central Bank: Buy £12.4 billion worth of government bonds

European Central Bank gaining control over debt crisis

European Central Bank gaining control over debt crisis

In an attempt to get control on the debt crisis the European Central Bank (ECB)  has purchased £12.4 billion (14.3 billion euros) of government bonds last week. This figure has dropped from the week before when they purchased 22 billion euro’s worth of bonds.

Bonds bought to protect economies

The bonds have been bought to protect economies like Spain and Italy from their debt problems. The ECB have done this by purchasing Italian and Spanish bonds on the financial markets and this has forced borrowing rates down which were a prominent financial threat to both nations.

This strategy by the ECB has been very controversial as it has not been officially approved  by national parliaments but European officials have given the bank the power to take over the purchases.

The banks latest purchases, which span the from 11-17th August, will push the programme’s total cost past the 100 billion to 110.5 billion euro mark. Taking the responsibility on themselves they are now left with the burden of battling market turmoil caused by the fears that many of the 17 countries that have the euro as their currency have bitten of more than they can chew and may struggle to repay their debt.

At the minute the purchases by the ECB are averaging at 3.6 billion euro’s a day. It is estimated by analysts at the Royal Bank of Scotland that a rate of 2.5 billion euro’s a day would leave the bank spending nearly 600 billion euro’s a year.

Finite limit on purchases

Nick Mathews, RBS senior European economist has warned that any sign the central bank is only intervening on a interim basis ‘will give the market a sentiment that there is a finite limit on purchases’.

In response the bank has said that it expects to deal with the bond purchase matter when the rescue fund is granted the powers. However, Jean-Claude Trichet who is the head of the bank has said that the ECB does not “pre-commit” to any future action it will take.

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