ECB will do 'whatever' to save euro

Thu, Jul 26, 2012, 01:00

European Central Bank president Mario Draghi said policy makers will do whatever is needed to preserve the euro, suggesting they may intervene in bond markets as surging yields in Spain and Italy threaten the existence of the 17-members currency union.

"To the extent that the size of these sovereign premia hamper the functioning of the monetary policy transmission channel, they come within our mandate," Mr Draghi said in a speech at the Global Investment Conference in London today.

"Within our mandate, the ECB is ready to do whatever it takes to preserve the euro," he said. "Believe me, it will be enough."

Economists said the comments suggest the ECB may be preparing to unveil new measures to fight the crisis as potential bailouts for economies the size of Spain and Italy threaten to overwhelm Europe's rescue funds. Spanish politicians have called on the ECB to do more after yields on the country's bonds soared to euro-era records this week.

Spanish yields slumped after Mr Draghi's remarks, with the rate on the 10-year bond dropping 32 basis points to 6.98 per cent earlier in Madrid. It touched a record 7.69 per cent earlier this week.

The euro jumped and stocks rose. The single currency climbed as high as $1.2285 after trading at $1.2118 before Mr Draghi spoke. The Stoxx Europe 600 Index gained 1.6 per cent.

"His comments certainly suggest that ECB purchases of Spanish and Italian bonds are back on the table for discussion," said Chris Scicluna, head of economic research at Daiwa Capital Markets Europe.

Meanwhile, European Commission president Jose Manuel Barroso will visit Greece today amid mounting speculation the country may be forced to exit the euro zone.

Mr Barroso is scheduled to meet Greek prime minister Antonis Samaras in Athens later as worries persist about Greece's ability meet the terms of its international aid agreements.

The visit by Mr Barroso is regarded as a gesture of political support amid heightened uncertainty about the country's future.

Greek politicians are struggling to identify budget cuts required under its €130-billion bailout as officials from the European Commission, the European Central Bank and the International Monetary Fund gather in Athens this week to inspect the government's finances.

The Greek finance minister, Yannis Stournaras, aims to win approval from the coalition government's partners for about €11.5 billion in savings for 2013 and 2014.

The savings are expected to come chiefly from spending cuts, a ceiling on pensions and reductions in welfare benefits.

The government has insisted it will impose no new measures on Greeks this year, beyond some €3 billion in savings outlined in March, chiefly in health care and the military.

But the international groups might demand more in light of a Greek budget shortfall this year estimated at €2 billion.

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