Chancellor Angela Merkel of Germany, back from vacation, voiced her approval for the need for conditions attached to any bond purchases by the European Central Bank (ECB). While the news seemed to cheer markets somewhat, Finland said that its officials have been preparing for a breakup of the eurozone and that European officials should do likewise.
Bloomberg reported Friday that Merkel backed ECB President Mario Draghi’s twofold plan. The first requirement, he had said on Aug. 2, was that tough conditions would be imposed on any country whose bonds the ECB would purchase. The other was that the country would have to buy debt throughEurope’s bailout funds before the ECB would act.
Merkel (left) reiterated her support for taking strong action to save the euro, saying in a Thursday interview in Canada that while “obviously time is pressing” on quelling the crisis, “on many of these issues we feel we’re on the right track.” She added that eurozone policy makers “feel committed to do everything we can to maintain the common currency.”
With regard to Draghi’s plan to buy bonds from countries needing assistance, she said that decisions made by the ECB lately “have made it clear that the European Central Bank is counting on political action in the form of conditionality as the precondition for a positive development of the euro.”
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A lot could ride on that bond purchase plan. Steven Major, head of fixed income research at HSBC Holdings in London, said that while the notion of the central bank intervening could rattle investors, it could be very effective in driving down the crippling yields currently being paid by Spain.
He was quoted saying, “Two percent would be reasonable for a two-year Spanish bond if the ECB decides it should go there. It’s all about getting those front-end yields stapled to the floor.”