By Nick Mann | 7 September 2012
The European Central Bank’s plan to buy unlimited government bonds from the countries worst hit by the eurozone crisis will bring stability and growth to the single currency bloc, the managing director of the International Monetary Fund said yesterday.
Christine Lagarde welcomed ECB president Mario Draghi’s announcement of the Outright Monetary Transmissions programme, which aims to reduce the cost of borrowing for countries such as Spain and Italy.
‘Decisive implementation of the new intervention programme will help repair monetary transmission and support countries’ efforts to secure finance at a reasonable cost while they undertake sustained macroeconomic adjustment,’ she said. ‘We see the ECB’s action as an important step toward strengthening stability and growth in the euro area.’
Under the framework, the ECB will intervene to buy up government debt when a particular country’s high bond yields are affecting monetary policy across the eurozone.
Announcing the plans yesterday, Draghi said the approach would be ‘a fully effective backstop to avoid destructive scenarios with potentially severe challenges for price stability in the euro area’.
‘OMTs will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro,’ he added.
Countries wanting to benefit from ECB intervention will have to meet the ‘strict and effective’ conditions attached to the two eurozone bailout funds, the European Financial Stability Facility and the European Stability Mechanism
Olli Rehn, vice-president of the European Commission, also welcomed the programme, which he said would help to restore investor confidence in the countries targeted by the ECB bond-buying.
He added: ‘The governments of vulnerable euro area member states must continue to take determined action for sound public finances and sustainable growth and job creation. The pursuit of these policies will remain the responsibility of the governments concerned.’
The bond-buying programme was, however, opposed by Germany’s central bank, the Bundesbank, whose president Jens Weidmann is reported to have voted against the proposal.
