ECB Bond Pledge

17:54 Thursday 6th September 2012
Drive BBC Radio Cambridgeshire

CHRIS MANN:  Try to save the Eurozone. That was the promise from the boss of the European Central Bank. To do whatever it takes to preserve the Euro. Today, Mario Draghi, the man in charge of the ECB, appeared to start to act on that promise. Our business reporter Adam Kirtley joined me earlier with more. (TAPE)
ADAM KIRTLEY: … is that the European Central Bank will buy Eurozone bonds from countries that are struggling to lend at a decent interest rate. So Spain, for example, is paying pushing 7% interest on its bonds, because people see them as risky. What this will do is the European Central Bank is saying, right, we will buy unlimited numbers of bonds. We haven’t put a cap on it. And that will make those bonds more popular. That will drop the interest that they have to pay. So, in other words, Spain will be able to issue IOUs if you like at a much cheaper interest rate, which should shore up its economy. And of course Mario Draghi said a month ago, we will do whatever it takes to keep the Eurozone together. And this is the latest attempt to do that.
CHRIS MANN: This is about confidence, isn’t it, about shoring up these economies? It’s not about real facts of anything economically getting better.
ADAM KIRTLEY: No it’s not. And indeed today the European Central Bank has downgraded the Eurozone’s performance for next year. They think it will actually contract by 0.4% this year, and a small growth of just half a per cent next year, which is a reduction in fortunes. So there’s nothing .. this is not going to suddenly make the Eurozone boom. What it’s trying to do is head off a situation where effectively governments can’t afford to borrow, and effectively go bust.
CHRIS MANN: So, are we going to have to pay a further price for this further down the road?
ADAM KIRTLEY: Well, some critics would say it’s just putting off the inevitable problem. The European Central Bank is at pains to point out that it’s not just a free-for-all. These countries still have to meet strict criteria for the European Central bank to buy these bonds. But with an unlimited cap on what they’ll buy, with the strict guidelines meaning austerity and reforms and all of that stuff, there’s by no means a pill that’s suddenly going to take the headache away.