ECB's Draghi Meets With European Parliament, Adding Detail To Bond Buying Promises Made On August 2

Tuesday, September 04, 2012 07:27
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ECB's Draghi Meets With European Parliament, Adding Detail To Bond Buying Promises Made On August 2

Tags: economy | European crisis | European zone

European Central Bank (ECB) president Mario Draghi dropped more hints that the ECB might soon start buying bonds of distressed countries.

 
The bond buying would target maturities of three years or less. The ECB’s monthly meeting starts on Thursday, September 6. Draghi made these statements at a meeting of the European Parliament on Monday, September 3.

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But Spain may not ask for help—a requirement for receiving funds—for several more months. Meanwhile, Moody’s downgraded the European Union’s long-term issuer rating to negative from stable.
 
Draghi says that buying the short maturity bonds would not break the European Union (EU) treaty, which forbids the ECB to finance governments. He also cautioned that buying longer maturity debt would indeed break the treaty.
 
The comments Draghi made at the meeting on Monday added detail to the comments he made on August 2. He said the optimal scenario would be for Spain to ask for funds before EU leaders meet on October 18.
 
And as Draghi is speaking of easing monetary policy with the bond purchases, Europe is beginning to experience inflationary pressures. Energy costs have risen, a fact that made European factories raise prices in July.
 
If European retailers decide to pass on the price increases to consumers, the result would be an entrée into headline inflation. This would add pressure to consumer spending. That, in turn, would stifle a consumer-led economic recovery.

 

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