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European Central Bank to buy bonds of several troubled nations

September 6, 2012 |  9:22 am

European bank
FRANKFURT, Germany — The European Central Bank announced Thursday that it would buy the bonds of financially flailing countries such as Spain and Italy in unlimited quantities if necessary to keep their borrowing costs down, in an unprecedented move to keep a lid on the euro debt crisis.

ECB chief Mario Draghi said such bold intervention was necessary to relieve undue pressure on governments whose borrowing rates have hit unwarrantably high levels, fueled by investors’ “unfounded fears” that Europe’s common currency was heading for a messy, debt-induced death.

“Let me repeat … the euro is irreversible,” Draghi declared here in Frankfurt, where the ECB’s headquarters are located. “There is no going back to the lira or the drachma or to any other currency. It is pointless to bet against the euro.”

Investors had been waiting for weeks for Draghi to make good on a pledge to do “whatever it takes” to guarantee the euro’s survival. His assurance in July that he would act succeeded in preventing a flare-up of the debt crisis through August, when many of Europe’s leaders were off on vacation.

Under the plan, the ECB will step in as necessary in the bond-trading market to keep distressed countries’ borrowing costs down; it would not buy bonds directly from governments at auction. The purchases would focus on shorter-term debt maturing in one to three years, Draghi said.

The bond-buying program does not apply to countries, such as Greece, that are in the middle of full-scale bailout programs funded by their European partners.

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— Henry Chu

Photo: President of European Central Bank Mario Draghi listens to questions during a news conference in Frankfurt on Thursday. Credit: Michael Probst / AP  

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