ECB to set thresholds for bond purchases

The ECB is considering setting interest rate thresholds for any purchases of struggling eurozone member bonds, so that it would buy such bonds if their interest rates exceeded a certain premium over German bonds, it has been reported.

Germany’s weekly Spiegel magazine said yesterday that the ECB would decide whether to implement such thresholds at its September meeting. The measure would signal to investors what interest level the ECB considers appropriate. That would discourage speculators from pushing yields above the level set by the eurozone’s central bank, the magazine said.

The ECB said it had no comment to make on the report. Earlier this month its president, Mario Draghi, signalled that the bank may start buying government debt to reduce crippling Spanish and Italian borrowing costs. But he also said any intervention would only come if governments requested eurozone aid first. That, in turn, would be linked to conditions.

By introducing interest rate thresholds, the ECB would aim to keep the financing costs of struggling countries in check, while also ensuring that interest rates in the eurozone do not diverge too much, according to Spiegel.

The German Bundesbank has opposed the ECB’s buying of sovereign bonds to bring down the borrowing costs of struggling states because it treads too close to the central bank’s ultimate taboo of state financing.

Wolfgang Schäeuble, the German finance minister, on Saturday rejected the idea of financing state debt via the ECB. “If we start doing that, we won’t stop. It’s like when you start trying to solve your problems with drugs,” he said.

However, Angela Merkel, the German chancellor, last week voiced support for Draghi’s crisis-fighting strategy.

Spiegel said the ECB wants to make its bond purchases more transparent in future and plans to start announcing the volume of its sovereign bond purchases immediately after buying them. At present, the bank announces each Monday how much money it spent on bond purchases during the previous week.


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