ECB mulling interest rate threshold for bond buys: magazine

BERLIN Sun Aug 19, 2012 7:44am EDT

The headquarters of the European Central Bank (ECB) is pictured in Frankfurt July 30, 2012. REUTERS/Alex Domanski

The headquarters of the European Central Bank (ECB) is pictured in Frankfurt July 30, 2012.

Credit: Reuters/Alex Domanski

BERLIN (Reuters) - The European Central Bank is considering setting interest rate thresholds for any purchases of struggling euro zone country's bonds so that it would buy such bonds if their interest rates exceeded a certain premium over German bonds, a German magazine reported.

Germany's weekly Spiegel magazine, which did not name its sources, said on Sunday that the ECB would decide whether to implement such thresholds at its September meeting.

The measure would signal to investors what interest level the ECB considers appropriate. That would discourage speculators from pushing yields above the level set by the euro zone's central bank, the magazine said.

The ECB said it had no comment on the report.

ECB President Mario Draghi signaled earlier this month that the bank may start buying government debt to reduce crippling Spanish and Italian borrowing costs but he also said any intervention would only come if governments requested euro zone aid first. That in turn would be linked to conditions.

By introducing interest rate thresholds the bank would aim to keep the financing costs of struggling countries in check while also ensuring that interest rates in the euro zone do not diverge too much, according to Spiegel.

The German Bundesbank has opposed the ECB's buying of sovereign bonds to bring down the borrowing costs of struggling states because it treads too close to the central bank's ultimate taboo of state financing.

German Finance Minister Wolfgang Schaeuble on Saturday rejected the idea of financing state debt via the European Central Bank: "If we start doing that, we won't stop. It's like when you start trying to solve your problems with drugs," he said.

German Chancellor Angela Merkel however voiced support on Thursday for Draghi's crisis-fighting strategy.

Spiegel said the ECB wants to make its bond purchases more transparent in future and plans to start announcing the volume of its sovereign bond purchases immediately after buying them. At present the bank announces each Monday how much money it spent on bond purchases during the previous week.

(Reporting by Michelle Martin; Editing by Susan Fenton)

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