European Central Bank Can’t Offset Euro Bond Buys

Falls short by 13.5 billion euros in offsetting purchases

 

The European Central Bank (ECB) failed Tuesday to attract sufficient funds to offset its spate of bond buying, coming up 13.5 billion euros ($17.76 billion) short on a total of 73.5 billion euros ($96.69 billion) it needed to do so.

In the last week the ECB spent 1.121 billion euros buying up bonds to try to soothe markets spooked by the possibility of debt contagion spreading beyond Greece, Ireland and Portugal to eurozone countries like Spain. Normally it also takes in seven-day deposits from commercial banks each week so that it can offset that spending, but that did not happen; according to a Reuters report, the failure is probably due to banks hanging on to their funding at year end, when worries seem to intensify.

Only 41 banks provided funds offsetting purchases; last week 44 banks did so. The past week’s 1.121-billion-euro purchase was double what the ECB spent the previous week.

Analysts believe that purchases are focused almost exclusively on the three main trouble spots: Greece, Ireland and Portugal. They also feel that purchases might need to be stepped up in the new year when tension is expected to escalate.

Martin Van Vliet, economist for ING, said, “I think they [the ECB] will have to ramp up their bond purchases next year when the pressures on periphery countries are likely to resume and the refinancing calendar gets busier. They are still in crisis mode.”

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