Eurozone leaders support expected purchase of bonds

EU leaders appeared to be lining up behind the ECB’s expected purchase of government bonds, with even German chancellor Angela Merkel not opposed.

Markets were already reacting positively to the leaked comments by ECB president Mario Draghi that short-term purchases of up to three years would not be contrary to the EU rules against monetary funding.

Whether tomorrow’s ECB meeting will meet the expectations of the market and eurozone leaders was doubted by analysts, who warned it could in fact reverse yesterday’s easing of Spanish bonds in particular.

Meetings between what are seen as the north and south factions of the EU resumed with vigour yesterday after a summer when even the markets took it easy.

The downgrading of the EU to negative by Moody’s was largely ignored at the meeting in Rome of prime minister Mario Monti and French president Francois Hollande, who concentrated on supporting the ECB in it’s bond-buying plans.

Monti reiterated countries could not make it alone in tackling the crisis and rebuilding their economies. They need help, he said, adding that the ECB should act to remove the problems created by bond spreads “that have no underlying economic justification”.

“The EU must recognise that countries that have met obligations should be helped to deal with excessive bond spreads,” he said.

Hollande, facing rising unemployment and falling popularity at home, said: “It is the role of those institutions involved in the eurozone to intervene, notably the ECB.”

Merkel is stepping into election mode 12 months ahead of federal elections in Germany. She attacked the markets, saying they had not served the people. Preparing her electorate for an austere campaign, she said the question was whether politicians in Europe could win elections with the promise of solid finances that balance spending with income.

In Berlin, Greek finance minister Yannis Stournaras met counterpart Wolfgang Schäuble, where a statement continued the theme of telling Athens to stick to the its bailout programme.

European Council president Herman Van Rompuy will travel to Athens on Friday. He is working on his interim report on EU political and economic union for next month’s summit.

In the meantime, Merkel flies to Madrid tomorrow to meet with Spanish prime minister Mario Rajoy. Some Spanish media say he intends to sound out the possibility of Spain asking for a sovereign bailout.