The ECB Bond Buying Programme: Will It Keep the Euro Intact?

The latest attempt by the European Central Bank (ECB) to save the flailing Euro is the bond buying programme, which was announced in September amongst much debate. The arguments for and against the bond buying programme continue, with some saying that the movement is precarious, whilst others say it’s a bold measure that needs to be taken. In short, the bond buying programme is an open-ended offer to purchase unlimited government bonds in distress. The objective of the bond buying programme is to lower the cost of borrowing for Spain and Italy, which will hopefully strengthen the Euro and reduce the risk of the fragmentation of the Eurozone and the single currency. This article examines the main components of the bond buying programme and examines the primary concerns of the different parties involved.

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What is the Bond Buying Programme?

The new bond buying programme will be known as outright monetary transactions (OMTs), which will mean that the ECB will have the ability to intervene in the secondary markets to purchase government debts where the yields of bonds are too high, which in turn jeopardises the standardised monetary policy of the Eurozone. The bond buying programme purchases would apply to short-term debts of up to three years. The countries benefiting from the programme would first have to request a Eurozone bailout. According to Draghi, he cannot force the International Monetary Fund (IMF) to participate, but would strongly seek out its support in bailout programmes, as the ECB believes that the IMF’s participation in the bond buying programme is essential. Fortunately, the first reaction from the IMF was positive.

The Bond Buying Programme and the ECB

The bond buying programme was announced by ECB President Mario Draghi, who also set out strict conditions for triggering the scheme. He put pressure on the Eurozone’s political leaders to request assistance and to follow austerity measures, and to agree on direct bailouts for crippled economies prior to the implementation of the bond buying programme by the ECB. At the time, the only vote against the bond buying programme in the 13 member council came from Germany’s Bundesbank, which was brushed aside in favour of the ECB’s pledge to do whatever it takes to save the Euro.

Arguments against the Bond Buying Programme

Not all parties welcomed the bond buying programme. More moderate groups in Germany have accused Draghi of overstepping his mandate and for championing a policy that would fuel inflation and finance debt-ridden governments.

Penny Munroe is an avid writer in finance related news and tips. Articles include selecting the ideal Forex trading platform to the latest in global news.

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