December 9, 2011
The European Central Bank is resisting calls to buy government bonds, but it has cut interest rates to just one percent. German commentators on Thursday examine whether the ECB is pursuing the right course of action in the face of the currency crisis.
It certainly wasn't news the world's financial markets had expected or wanted to hear. On Friday, Asian stocks became the latest to tumble on the news that the European Central Bank (ECB) would not be buying up more large chunks of government bonds. Investors had been counting on such a move to help ease the euro zone's debt crisis.
But ECB president Mario Draghi said late on Thursday at a crucial summit of European leaders that the bank did not anticipate increasing the scale of its bond interventions, which would have kept borrowing costs down for weaker countries like Italy and Spain.
In a sign of rising concern over the debt crisis, however, the ECB also announced a cut in the base interest rate to 1 percent, as well as several other measures to bolster Europe's economy and financial system. Banks can now borrow unlimited amounts of ultra-cheap money for up to 36 months and rules on collateral for these loans will be loosened by making lower rates on mortgages and bank loans acceptable. Rules on how much capital banks must hold in reserve with the ECB were also relaxed, which will free up the banks to lend and invest more.
But the package was met with little enthusiasm. Stocks fell heavily alongside the euro, while borrowing costs for European governments rose. Based on comments Draghi made in a speech last week, many had hoped that the ECB was prepared to ramp up its purchases of European government bonds as the euro zone continues to slide toward recession. But on Thursday he said the bank had no explicit plan to do so and was "surprised" by the way his remarks had been interpreted.
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