Pressure on ECB to print money

THE European Central Bank (ECB) could soon bow to pressure to print money to prevent a further escalation of the eurozone’s debt crisis, according to a Reuters poll.

The poll of 50 bond strategists across Europe and the US, gave a 48% probability that the ECB will be forced to conduct outright quantitative easing (QE).

That would be a highly controversial break from its existing policy, where it offsets government bond purchases in its Securities Markets Programme by draining liquidity from the system in separate operations.

Of those who predicted the ECB would start QE, a majority said it would happen by March 2012.

A slim majority saw a bigger role for the ECB, expecting it to become the lender of last resort for governments.

ECB policymakers have rejected calls to intervene decisively to shore up the eurozone, but volatility in regional debt markets has made a decision on a bigger role for the monetary authority more pressing.

ECB president Mario Draghi said yesterday the bank was contributing to economic stability while maintaining its independence. He warned there would be a huge social and economic impact if the central bank were to lose its credibility.

Italian 10-year yields surged back above 7% this week, widely viewed as an unsustainable level, and the premium triple-A countries like France and Austria have to pay over German Bunds, hit euro-era highs.

The ECB has reluctantly carried out its bond-buying programme since 2010. It has shown little sign of shifting into a higher gear even as countries like Italy risk being shut out of the markets.

The fear is Italy would pose a systemic risk to the eurozone given the size of its economy and national debt — the third largest in the world.