THE EUROPEAN Central Bank said last night it was ready to implement a bond-buying programme, in a move financial markets had been looking for to prevent the euro zone debt crisis widening.
The bank said it would “actively implement” its bond-buying programme to fight the euro zone’s debt crisis, signalling it will purchase Spanish and Italian bonds to halt financial market contagion.
In a statement, the ECB said it welcomed announcements by Spain and Italy – countries now at the centre of the debt crisis – on new fiscal and structural policy measures, and it urged both governments to roll them out swiftly.
The Frankfurt-based central bank added that it “will actively implement its Securities Markets Programme.”
“This programme has been designed to help restore a better transmission of our monetary policy decisions – taking account of dysfunctional market segments – and therefore to ensure price stability in the euro area”.
International financial markets are poised for another turbulent week as global stock exchanges open today after the United States had its top “AAA” credit rating downgraded for the first time on Friday.
Markets were last night waiting for some reassurance from western government as finance ministers from the Group of Seven countries and European Central Bank governors discussed separately how to deal with the US and euro zone financial crises.
Fears the global economy is headed for a “double-dip” recession sparked frantic efforts to find agreement on the best way to prevent Spain and Italy from becoming the next victims of the euro debt crisis.
As the emergency talks took place, German chancellor Angela Merkel and French president Nicolas Sarkozy issued a joint statement, pressuring the ECB to buy Italian and Spanish bonds to ease the worsening financial turmoil.
They called on their parliaments to approve by the end of September the July 21st agreement to strengthen the EU bailout fund.
Stock markets in the Middle East, which open on Sundays, slumped yesterday following the the US downgrading by Standard and Poor’s.
Some $2.5 trillion was wiped off the value of global stock markets last week in the biggest decline since the 2008 financial crash.
The sell-off was sparked by concerns over a slowdown in the US economy and by the lack of effective political leadership in Europe and the US in tackling government debt.
The decision of S&P, one of three major credit rating agencies, to strip the US of the top AAA rating marks is the first time it has lost the highest rating in 94 years.
The US is now rated at “AA+” after losing the top rating which it first received from another rating agency, Moody’s, in 1917. The downgrade will increase the cost of borrowing for the US government, state-backed agencies, companies and consumers.
China, the largest creditor of the US, sharply criticised America, saying its days of squandering borrowed money were over and warning that it must learn to live within its means. “The days when the debt-ridden Uncle Sam could leisurely squander unlimited overseas borrowing appeared to be numbered,” the official Xinhua news agency said.
The downgrade came less than a week after a last-minute deal was agreed in the US to cut spending by $2.5 trillion following a bitter political row over the raising of the $14.3 trillion debt ceiling.
S&P said that the US Congress needed to cut $4 trillion to put the nation’s finances on the right track and that the political wrangling had weakened the country’s ability to deal with its financial problems.
In anticipation of further financial pressure on the US, treasury secretary Timothy Geithner yesterday agreed to remain on in his post following a request by Barack Obama.
Mr Geithner had considered leaving after agreement was reached on the US debt ceiling.
Taoiseach Enda Kenny and Minister for Finance Michael Noonan have been monitoring developments in the markets and are maintaining contact with their officials as the crisis continues to unfold.
