The European Central Bank’s move into the Spanish and Italian bond markets on Monday did stabilise that sector of the markets, and made the two country’s debts cheaper to service.
After disappointing traders last week when the ECB failed to act, Italy and Spain saw their borrowing costs soar, fanning the flames of Europe’s financial crisis. It may only be a stop-gap measure, but for now it is enough. A Eurobond could be the solution, but the creation of such an instrument still divides opinion.
“The decision by the Italian government to anticipate the fiscal package combined with the decision by the ECB to buy BTPs in the market will have a positive effect in the short term in the market. Indeed the first evidence from today’s market is that the spread has narrowed down from the peak which was reached on Friday,” said Italian Managing Director Luca Peviani of investment company P&G.
Many Italian business leaders have also pledged to buy bonds to support their economy, but all eyes are on the EU’s leaders, who have yet to meet face-to-face to tackle this latest turn of the financial screws on the euro zone. Some say however it is up to member states to get their houses in order first.
“Each country needs time to launch programmes to fight deficits and debts. The actions taken this weekend are very important for calming the crisis,” said French Finance Minister François Baroin.
Finally a clearer picture is appearing of the debt mountain built up over the last two decades; the bill is now on the table for staving off small recessions during that period; if it cannot be paid it may add up to a deep and unavoidable depression.