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Draghi's euro zone life boat

Thursday, September 06, 2012 - 02:41

Sep.06 - The European Central Bank agrees to launch a new and potentially unlimited bond-buying programme to lower struggling euro zone countries' borrowing costs and draw a line under the debt crisis. Ciara Sutton reports

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Last month the ECB President vowed to do whatever it takes to save the euro. This month Mario Draghi...said it again. (SOUNDBITE) (English) ECB PRESIDENT, MARIO DRAGHI, SAYING: "We will do whatever it takes, within our mandate, within our mandate to have a single monetary policy for the euro area, and to maintain price stability in the euro area and to preserve the euro." But this time his words were backed by actions - a potentially unlimited bond-buying programme. The central bank will buy bonds maturing within three years from countries who seek help and stick to tough policy conditions, preferably ones drawn up and monitored by the IMF. Draghi says the plan will address fears about the survival of the euro. There was certainly a hugh sigh of relief from investors desperate to see lower borrowing costs for Spain and Italy. Dominic Johnson is from Somerset Capital Management. (SOUNDBITE) (English) SOMERSET CAPITAL MANAGEMENT, DOMINIC JOHNSON, SAYING: "This guy has come out and he has said we are not going to let bond yields rise above this level, we've got to keep buying them until they fall, and that is very very significant. It's the first time we've had proper unlimited commitments from the European Central Bank, he signalled this and he has delivered, and that's why people are so incredibly optimistic at the moment." Only one member of the Governing Council objected - the most likely suspect - Bundesbank chief Jens Weidmann. He's expressed concern that intervening in the bond market will break the ECB taboo of financing member states. And he's not alone. Thorsten Polleit is an economist with Degussa Goldhandel (SOUNDBITE) (German) THORSTEN POLLEIT, ECONOMIST WITH DEGUSSA GOLDHANDEL, SAYING: "The German Bundesbank has recognised the acute danger tied to the bond-buying programme of the ECB, It is, quite rightly, against these purchases and this programme, in reality, will not lead to a resolution of the crisis but will add another problem." The ECB clearly believes it's a risk worth taking. But Draghi did remind policy makers they have a part to play too (SOUNDBITE) (English) ECB PRESIDENT, MARIO DRAGHI, SAYING: "We should not forget why countries have found themselves in a bad equilibrium to start with. And this is because of policy mistakes. That's why we need both legs to fix this situation." Spanish and Italian government bond yields fell further on the news. But numerous obstacles remain - not least a German court ruling next week on the euro zone's rescue fund. Ciara Sutton, Reuters.

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Draghi's euro zone life boat

Thursday, September 06, 2012 - 02:41