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ECB will act to save euro, says Mario Draghi ECB will act to save euro, says Mario Draghi
(about 3 hours later)
The European Central Bank is ready to do "whatever it takes" to support the euro, its president has said.The European Central Bank is ready to do "whatever it takes" to support the euro, its president has said.
Mario Draghi's strong message of support prompted a rally in European share markets and the euro.Mario Draghi's strong message of support prompted a rally in European share markets and the euro.
They also triggered a fall in bond yields. Spain's 10-year yield, which had hit a record high of 7.6% earlier, fell back to 7%. In Span, the Ibex share index jumped 6%, while in Italy, the main share index closed up 5.6%.
Bond yields are an indication of the interest rate a country would have to pay to borrow money. The comments also triggered a fall in bond yields. Spain's 10-year yield, which had hit a record high of 7.6% earlier, fell back to 7%.
A rate above 7% is generally seen as unsustainable in the long run. Bond yields are an indication of the interest rate a country would have to pay to borrow money. A rate above 7% is generally seen as unsustainable in the long run.
Leading stock markets rose, with London's FTSE 100 share index up more than 1%, Germany's Dax rising almost 2% and France's Cac climbing 3%. Earlier in the week, share prices had dived and Spanish bond yields jumped sharply on fears that the debt problems being faced by several of the country's regional governments would push Spain towards a full bailout.
Shares in New York also rose at the start of Thursday's trading. Mt Draghi's comments also boosted the euro, which had been languishing at two-year lows against the dollar earlier this week. It rose 0.5% to $1.2214.
Speaking at a conference in London marking the start of the Olympics, Mr Draghi said he would do whatever was necessary to stop the eurozone falling apart, including taking action to lower government borrowing costs. In other stock markets, the UK's FTSE 100 ended up 1.4%, France's Cac 40 jumped 4.1% and Germany's Dax climbed 2.8%.
He said: "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough." On Wall Street, US stocks rose in early trade with the Dow Jones up 1.3%.
He added that the single currency was irreversible. Bond-buying programme
His supportive remarks sent the euro 0.5% higher against the dollar to $1.2214. Speaking at a conference in London marking the start of the Olympics, Mr Draghi said: "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough."
Many, investors took that to be a strong hint that the ECB might re-start its Securities Markets Programme (SMP).
The scheme - introduced in 2010 - allows the ECB to buy large quantities of government bonds from banks and other financial institutions on the open market.
That, in turn, allows indebted eurozone governments to borrow money at rates much lower than those offered in the commercial bond markets.
The last SMP purchase took place at the end of January. Since then, Mr Draghi has, repeatedly reiterated his resistance to large-scale bond purchases. The last time was at the ECB's 5 July press conference.
The ECB holds its next interest rate meeting and press conference next week.
'Positive' remarks'Positive' remarks
An auction of Italian two-year bonds on Thursday saw the interest rate investors demanded to lend to the Italian government rise to an eight-month high of 4.86%.An auction of Italian two-year bonds on Thursday saw the interest rate investors demanded to lend to the Italian government rise to an eight-month high of 4.86%.
However, demand for the bonds was strong, and the yield on the benchmark 10-year bond fell back in line with Spain's - another positive sign.However, demand for the bonds was strong, and the yield on the benchmark 10-year bond fell back in line with Spain's - another positive sign.
The French finance minister, Pierre Moscovici, said Mr Draghi's remarks on government bond yields were "very positive".The French finance minister, Pierre Moscovici, said Mr Draghi's remarks on government bond yields were "very positive".
Elsewhere in Europe, the president of the European Commission, Jose Manuel Barroso, is visiting Greece for the first time three years for talks.Elsewhere in Europe, the president of the European Commission, Jose Manuel Barroso, is visiting Greece for the first time three years for talks.
Greece, which is the worst-affected country in the eurozone is also playing host to international monitors from the European Union, the International Monetary Fund and the European Central Bank, who are there to check how it is getting on with its debt-cutting programme - a condition of its bailout loans.Greece, which is the worst-affected country in the eurozone is also playing host to international monitors from the European Union, the International Monetary Fund and the European Central Bank, who are there to check how it is getting on with its debt-cutting programme - a condition of its bailout loans.
The three, known as the troika, had a two-hour meeting with the Greek finance minister Yannis Stournaras.The three, known as the troika, had a two-hour meeting with the Greek finance minister Yannis Stournaras.
A senior official said that the government had identified proposed spending cuts for the next two years, which he said were likely to be presented to the inspectors later on Thursday.A senior official said that the government had identified proposed spending cuts for the next two years, which he said were likely to be presented to the inspectors later on Thursday.
The eurocrisis has spread its negative effects even further this week with the credit ratings agency Moody's downgrading the outlook for Germany's AAA credit rating to negative, because of the prospect of it having to provide more help to prop up the single currency. The euro crisis has spread its negative effects even further this week with the credit ratings agency Moody's downgrading the outlook for Germany's AAA credit rating to negative, because of the prospect of it having to provide more help to prop up the single currency.