Eurozone debtors praise bond-buying plans | Europe| News and current affairs from around the continent | DW | 07.09.2012
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Eurozone debtors praise bond-buying plans

Italy, Spain and France have urged the EU to ease its monetary policy for months, so that their government bond interest rates would drop. It comes as no surprise that debtor states are welcoming the ECB's decision.

Italian Prime Minister Mario Monti said the decision of the European Central Bank (ECB) to buy up government bonds from fiscally-challenged eurozone countries was an "important step forward … towards a more satisfactory governance of the eurozone." Monti spoke during a press conference with European Commission head Jose Manuel Barroso on Thursday night in Rome - on Friday, Italian newspapers reported that Monti had never before looked so contented.

Interest rates on long-term government bonds dropped to 5 percent on Friday. During the summer, they had peaked at around 7 percent. Monti, who had been campaigning for a bond-purchasing program by ECB and the eurozone's rescue fund at the EU's last summit in June, was apparently vindicated. "Italy is continuing to act in a disciplined fashion, on the road to reform," which "could make this aid unnecessary," Monti said.

In order to receive help, Italy would have to officially apply, and then fulfill certain requirements imposed by the euro group. But that's something Monti still wants to avoid.

After the mere announcement of unlimited bond buy-ups, Barroso also saw signs for Italy winning back market confidence.

From L - R: Spanish Prime Minister Mariano Rajoy, French President Francois Hollande, Italian Prime Minister Mario Monti and German Chancellor Angela Merkel (photo: REUTERS/Lionel Bonaventure/Pool)

Rajoy, Hollande, Monti and Merkel agreed on more help for eurozone crisis states in June 2012

But Milan-based newspaper "Corriere della Sera" warned tagainst rushing into a state of euphoria. "The new monetary policy can only successfully maintain the euro if other measures at the European level are taken. There has been a lot of talk about these measures - one of them being the banking union - but Europe remains deeply divided. The differences are complex. Overcoming them asks for quite a dangerous political process." 

French Socialists are glad

French President Francois Hollande was also pushing for a stronger ECB within the rescue scheme over the summer. After meeting British Prime Minister David Cameron in London on Thursday evening, Hollande said he respects the independence of the ECB. Europe's Central Bank had "acted in line with the mandate it has been given" to "safeguard growth in Europe," he said.

Bruno Le Roux, leader of the Socialist Party in the French parliament, was a bit more explicit in calling the ECB's decision a "clear victory" for Socialist President Hollande. In stating it's "the definite end of Merkozy," Le Roux was referring to the relatively conservative monetary policy promoted by German Chancellor Angela Merkel and Hollande's predecessor, Nicolas Sarkozy.

French conservative daily "Le Figaro" explicitly thanked ECB chief Mario Draghi. "Super-Mario took on responsibility as everyone was asking him to. To hell with the pure doctrine of monetary policy! Mario Draghi has done his job, as they say," the newspaper wrote. "Calming down the markets is one thing. But it's a completely different thing to regain market confidence. That's something the states have to do on their own. Here [in France] it's a huge task. There is no sign of structural reforms or public-expense budget-cutting yet."

Spain hesitates

French President Francois Hollande (left) and Spanish Prime Minister Mariano Rajoy (photo: REUTERS/Juan Medina)

Hollande (left) and Rajoy are working together

Spain's reaction to the ECB announcement was more hesitant. Spanish Prime Minister Mariano Rajoy, who was hosting Chancellor Merkel on Thursday, said he would closely look into the ECB resolution. The ECB requested that states be put under the watch of the EU and the International Monetary Fund (IMF). Rajoy had always refused this; the last time he publicly voiced his discontentment was last week while visiting French President Hollande. Interest rates on Spanish government bonds reached a new record high a couple of weeks ago, but have now dropped again. 

Barcelona-based newspaper "La Vanguardia" was full of praise for ECB head Draghi. "The ECB chief kept the promise he had made in July. He is determined to do everything to save the common currency." But the newspaper pointed out that some important aspects are still in limbo. "For instance, it is not clear what happens if a state benefits from an ECB intervention on the bond market, but then doesn't fulfill its obligations, or is not able to put its finances in order. This question will put to the test in whether Draghi's plan will be enough to overcome the euro crisis."

Praise from Washington

The IMF, which has contributed about a third of the bailout money to the eurozone's rescue funds, has reacted very positively to the ECB's plans. IMF head Christine Lagarde welcomed the ECB's bond-buying program as an important step toward strengthening the eurozone.

"Decisive implementation of the new intervention program will help repair monetary transmission, and support countries' efforts to secure finance at a reasonable cost while they undertake sustained macroeconomic adjustment," Lagarde said in a statement. "The IMF stands ready to cooperate within our frameworks," she added.

According to ECB plans, the IMF should formulate and monitor the indebted countries' obligations. The IMF, the U.S. and many other states from the G20 bloc had repeatedly called on the eurozone to step up its efforts.

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