Juncker hints ECB to announce bond market buy-up

EURO GROUP chief Jean-Claude Juncker has fuelled speculation that European Central Bank governors meeting on Thursday will announce a bond market buy-up to ease financial pressure on Spain.

Mr Juncker confirmed yesterday a decision on unspecified “measures” would happen “in the coming days” while German and US finance ministers called for “co-ordinated action” to restore euro zone confidence.

It followed signals of support from the leaders of Germany, France and Italy for ECB president Mario Draghi’s vow last week to “do everything necessary” within the ECB mandate to secure the euro.

In the euro zone crisis, the ECB has already bought about €212 billion worth of euro zone sovereign bonds on secondary markets. A meeting yesterday between US treasury secretary Timothy Geithner and Mr Draghi in Frankfurt added momentum to the rumour mill that further purchases are on the way.

Speculation of a looming intervention helped push Spanish government debt below critical levels yesterday, while Italy sold €5.5 billion of medium- and long-term bonds at a lower cost than at previous auctions.

But overall business confidence in the euro zone has fallen to a near three-year low. The fifth consecutive monthly fall in the European Commission’s economic sentiment indicator in July reflects fears of peripheral economic problems spreading to the euro zone’s economic core.

Mr Juncker said the euro zone was at a “decisive point” where members had to show “with all means available” they were ready to defend their currency’s stability. “Just what measures we will adopt [to secure the euro], we will decide in the coming days – we have no time to waste,” he told the Le Figaro newspaper.

“It is not yet decided what exactly we will do. That depends on the developments in the coming days and how quickly we have to react.”

Without going into details, he said the plan involved the ECB, the European Financial Stability Facility (EFSF) fund and the euro members.

His remarks mark the most senior confirmation of speculation that the ECB is planning to buy up Spanish bonds on secondary markets, while the EFSF acts on primary markets.

“We are co-ordinating ourselves closely with the central bank and, as Draghi said, we will see results,” said Mr Juncker.

After a meeting in Germany yesterday, Mr Geithner and German finance minister Wolfgang Schäuble issued a statement emphasising “the need for ongoing international co-operation and co-ordination”.

They promised close co-operation on “advancing the policy agenda in autumn to further stabilise global and European economies”.

They praised recent reform efforts in Portugal, Spain and Italy as well as Ireland’s successful bond auction.

Reports of a looming bond buy-up drew criticism from German chancellor Angela Merkel’s coalition partners yesterday. The European spokesman of the Free Democrats urged his party to take the ECB to the European Court of Justice for breaching its monetary stability mandate.

Meanwhile Dr Merkel’s Bavarian allies, the Christian Social Union, said Mr Draghi had “no mandate for bond-buying”.