Draghi to announce plan for ECB bond-buying

Ireland will benefit from the ECB purchasing sovereign bonds, which the bank’s president Mario Draghi is expected to announce today.

Details of the purchase, leaked from Frankfurt, say it will engage in unlimited purchases of government debt, with no public cap on yields. Funds will be withdrawn from the system to avoid accusations of printing money.

Bloomberg quoting two ECB officials said the bank would purchase bonds with a maturity of up to three years but countries would first have to seek help from the EU’s rescue fund and agree to adhere to conditions.

Should they breach these conditions, the ECB would stop buying their bonds or even sell those they hold, increasing pressure on the country.

While the emphasis is on Spain with its massive banking problems and on Italy, countries already in a programme, such as Ireland and Greece, are expected to benefit from the bond-buying programme.

Economist Daniel Gros said that even without the ECB purchasing Irish bonds, the move would have a positive impact on the country. “It will help stabilise the euro,” he said.

Ireland could well do with a helping hand as it bids to re-enter debt markets and deal with the funding cliff of €11.9bn in January, most of which has been raised through sales and swaps.

Reports suggest that the ECB will not have seniority (repayment priority) on any bonds it buys.

The announcement, expected today after the ECB’s monthly council meeting, cut yields on Spanish two-year bonds to their lowest since April, while Italian notes returned to their March levels.

Mr Draghi told MEPs in Brussels on Monday that the ECB needed to intervene in bond markets to take back control of interest rates that were diverging at a rapid pace between the various countries of the eurozone and threatening the common currency.

He has the support of eurozone leaders as over the past few days they voiced similar views, including German Chancellor Angela Merkel, French President Françoise Hollande and European Council President Herman Van Rompuy.

Ms Merkel made plain however in Berlin yesterday that she supported only the buying of short- term bonds. Some analysts were critical of this saying it would lead to renewed problems for countries in three years’ time.

There have been reports that Spanish prime minister Mario Rajoy will discuss applying to the rescue fund with Ms Merkel when they meet in Madrid today.

The ECB is also expected to cut its benchmark interest rate by 25 basis points to a half percent today according to a forecast of 58 economists surveyed by Bloomberg.