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Saturday 23.06.2018 | Name days: Līga

ECB unveils bond-buying euro debt plan

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Mario Draghi, president of the European Central Bank, has unveiled details of a new bond-buying plan aimed at easing the eurozone’s debt crisis, reiterating that the euro was «irreversible».

Mr Draghi said the ECB would engage in outright monetary transactions, or OMTs, to address «severe distortions» in government bond markets based on «unfounded fears».

He insisted that the ECB was «strictly within our mandate» of maintaining financial stability, but reiterated the need for governments to continue with their deficit reduction plans and labour market reforms.

OMTs will only be carried out in conjunction with European Financial Stability Facility or European Stability Mechanism programmes, he said.

In other words, countries will still have to request a bailout before the OMTs are triggered, BBC writes.

The ECB will ask the International Monetary Fund to help it monitor country compliance with its conditions.

The maturities of the bonds being purchased would be between one and three years and there would be no limits on the size of bond purchases, Draghi added.

The ECB also announced that it will keep its main interest rate at a record low 0.75 percent

Mr Draghi is hoping that ECB intervention in the bond markets will help reduce the borrowing costs of debt-laden countries such as Spain and Italy and lessen the likelihood of them needing to ask for a full sovereign bailout, an eventuality that could bankrupt the eurozone and cause the collapse of the euro.

Spain is already benefiting from investors’ response to the plan.

Earlier in the day, the Spanish government raised 3.5bn euros on the debt markets, selling bonds due to mature in 2014, 2015 and 2016.

Stocks closed at multi-year highs on Thursday, with the S&P 500 ending at its highest level since before the collapse of Lehman Brothers as investors hailed a new European bond-buying program aimed at stemming the region’s debt crisis.

The rally was broad, with more than three-fourths of stocks listed on both the New York Stock Exchange and Nasdaq ending higher. Tech shares helped lift the Nasdaq in its best daily performance since July 27. SanDisk Corp (SNDK.O) climbed 8.4 percent to $44.01 and Micron Technology Inc (MU.O) added 7.8 percent to $6.68. The Dow was lifted by Walt Disney Co (DIS.N), which advanced 2.1 percent to an all-time closing high of $51.86, Reuters reported.

U.S. companies added staff in August at the fastest clip in five months, according to the better-than-expected ADP report, while a gauge of employment in the service sector also improved more than had been anticipated. New weekly claims for jobless benefits fell to the lowest level in a month.

Even with Thursday’s encouraging numbers, economists think the payroll report will show only modest hiring, at 125,000 new jobs, and the unemployment rate holding steady at 8.3 percent.

The Organization for Economic Co-operation and Development (OECD) has also added its support for the ECB bond-buying plan on Thursday, as it warned that the eurozone crisis posed the greatest risk to the global economy.

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