Bloomberg News

ECB Says It Settled Fewer Government Bond Purchases Last Week

October 10, 2011

Oct. 10 (Bloomberg) -- The European Central Bank said it spent less on government bond purchases last week.

The Frankfurt-based ECB said today it settled 2.3 billion euros ($3.1 billion) of bond purchases in the week through Oct. 7, down from 3.8 billion euros in the previous week. The central bank will take seven-day term deposits from banks tomorrow to absorb the 163 billion euros of liquidity created since its bond program started on May 10, 2010, a practice it employs to ensure the purchases don’t fuel inflation.

ECB President Jean-Claude Trichet said on Oct. 6 the central bank will spend 40 billion euros on covered bonds starting next month and will offer banks two additional unlimited loans of 12 and 13-month durations to help fight the region’s fiscal crisis. He also said that policy makers agreed to lend banks as much money as they need in their regular refinancing operations at least until July 2012.

The ECB was forced to buy Italian and Spanish government bonds after Europe’s debt crisis pushed the nations’ yields to euro-era records. Policy makers are increasingly split over the best way to fight the turmoil. Juergen Stark on Sept. 9 announced he will resign from the ECB’s Executive Board in protest at the purchases and Governing Council member Jens Weidmann said last month the bank should reduce the risks on its balance sheet rather than increase them.

German lawmakers on Sept. 29 approved an expansion of the region’s rescue fund, setting the stage for the overhauled 440 billion-euro facility to be in place by mid-October. If approved by all 17 member states, it will obtain the powers to buy bonds on the primary and secondary markets.

ECB Vice President Vitor Constancio said today the region’s bailout fund should support new bond issuances by Italy and Spain. While recapitalizing banks is “important,” the priority at the moment for the European Financial Stability Facility “is to provide support to new bond issuance by, for instance, Italy or Spain,” he said.

--Editors: Simone Meier, Matthias Wabl

To contact the reporter on this story: Christian Vits in Frankfurt at cvits@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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