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Markets Cheer E.C.B. Plan to Shore Up Euro Bond Plan Lowers Debt Costs, but Germany Grumbles
(35 minutes later)
LONDON — Global stocks and the euro moved higher and borrowing costs for Spain and Italy were down Friday as new moves to stem Europe’s debt crisis received the same enthusiastic response from financial markets that greeted earlier plans. LONDON — Borrowing costs for Spain and Italy were down Friday as new moves to stem Europe’s debt crisis received the same enthusiastic response from financial markets that greeted earlier plans.
But analysts warned that while Thursday’s announcement from the European Central Bank of an unlimited bond-buying plan should have a positive impact on market perception, familiar political and technical problems still lay ahead for the 17-nation euro zone.But analysts warned that while Thursday’s announcement from the European Central Bank of an unlimited bond-buying plan should have a positive impact on market perception, familiar political and technical problems still lay ahead for the 17-nation euro zone.
And, in a worrying sign for euro zone policy makers, much of the media and political reaction in Germany — the euro zone’s most important country — was negative.And, in a worrying sign for euro zone policy makers, much of the media and political reaction in Germany — the euro zone’s most important country — was negative.
Although Chancellor Angela Merkel voiced support Thursday for the plan, other commentators asserted that the central bank’s move was reckless and that German taxpayers could be pushed to pay for the less-responsible members of the euro zone.Although Chancellor Angela Merkel voiced support Thursday for the plan, other commentators asserted that the central bank’s move was reckless and that German taxpayers could be pushed to pay for the less-responsible members of the euro zone.
“The E.C.B. Rewards Mismanagement,” read the headline to an editorial the left-leaning Sueddeutsche Zeitung. The editorial page of the conservative Frankfurter Allgemeine Zeitung led with a German proverb, “Necessity knows no law,” and criticized the E.C.B. for destroying the separation of fiscal and monetary policy.“The E.C.B. Rewards Mismanagement,” read the headline to an editorial the left-leaning Sueddeutsche Zeitung. The editorial page of the conservative Frankfurter Allgemeine Zeitung led with a German proverb, “Necessity knows no law,” and criticized the E.C.B. for destroying the separation of fiscal and monetary policy.
“Woe betide us if this goes wrong,” read the headline of an article explaining the bond program in the country’s most widely read paper, Bild.“Woe betide us if this goes wrong,” read the headline of an article explaining the bond program in the country’s most widely read paper, Bild.
The E.C.B.’s decision did provide temporary relief for Spain, whose 10-year borrowing costs fell below 6 percent late Thursday for the first time in four months. Italian 10-year bond yields also fell. The E.C.B.’s decision did provide temporary relief for Spain, whose 10-year borrowing costs fell below 6 percent late Thursday for the first time in four months. Italian and Portugese 10-year bond yields also fell.
Underlining the global reach of the euro zone crisis, stock markets in Asia rose Friday, as did those in Europe. The Euro Stoxx 50, a barometer of euro zone blue chips, was up 1.1 percent, and national stock indexes were also higher. Underlining the global reach of the euro zone crisis, stock markets in Asia rose Friday, as did those in Europe. The Euro Stoxx 50, a barometer of euro zone blue chips, was up 0.7 percent in late afternoon trading, and national stock indexes were also higher.
The euro advanced as well, trading at $1.2759 — its strongest since late June — compared with $1.2630 late Thursday in New York.The euro advanced as well, trading at $1.2759 — its strongest since late June — compared with $1.2630 late Thursday in New York.
Speaking in Frankfurt on Thursday, the E.C.B’s president, Mario Draghi, outlined a new program to lower borrowing costs of countries like Spain and Italy that have been forced to pay rates which most analysts believe would be sustainable in the medium term.Speaking in Frankfurt on Thursday, the E.C.B’s president, Mario Draghi, outlined a new program to lower borrowing costs of countries like Spain and Italy that have been forced to pay rates which most analysts believe would be sustainable in the medium term.
Called Outright Monetary Transactions, the program will focus on purchasing government bonds with maturities from one to three years. The E.C.B. will not set a limit on how much it buys and will not insist on senior creditor status, which means being paid ahead of others in the event of a restructuring. Such status worries other investors who fear they would face disproportionate losses.Called Outright Monetary Transactions, the program will focus on purchasing government bonds with maturities from one to three years. The E.C.B. will not set a limit on how much it buys and will not insist on senior creditor status, which means being paid ahead of others in the event of a restructuring. Such status worries other investors who fear they would face disproportionate losses.
But countries wanting help will have to ask for it and will then need to meet strict conditions. That presents a crucial problem for Spain, which is at the heart of the crisis and whose government worries that such a formal request would constitute a political humiliation.But countries wanting help will have to ask for it and will then need to meet strict conditions. That presents a crucial problem for Spain, which is at the heart of the crisis and whose government worries that such a formal request would constitute a political humiliation.
And difficult discussions lie ahead about Greece’s bailout, with international lenders due to arrive in Athens this weekend. The government there is asking for more time to hit its targets, but euro zone nations are reluctant to fill yet another gaping hole in Greek financial plans. A failure of those talks could still lead to a Greek exit from the single currency, with huge consequences for the rest of the euro zone.And difficult discussions lie ahead about Greece’s bailout, with international lenders due to arrive in Athens this weekend. The government there is asking for more time to hit its targets, but euro zone nations are reluctant to fill yet another gaping hole in Greek financial plans. A failure of those talks could still lead to a Greek exit from the single currency, with huge consequences for the rest of the euro zone.
While the E.C.B.’s announcement has undoubtedly bought time for the single currency area, analysts said it needed to use that time to build more credible structures in order to restore market confidence, including ambitious plans to construct a banking union.While the E.C.B.’s announcement has undoubtedly bought time for the single currency area, analysts said it needed to use that time to build more credible structures in order to restore market confidence, including ambitious plans to construct a banking union.
The experience of the euro zone crisis so far is that, whenever pressure from the financial markets is reduced, politicians postpone difficult decisions. Paradoxically, that could mean that the E.C.B.’s intervention will make agreement on crucial changes seem less urgent.The experience of the euro zone crisis so far is that, whenever pressure from the financial markets is reduced, politicians postpone difficult decisions. Paradoxically, that could mean that the E.C.B.’s intervention will make agreement on crucial changes seem less urgent.
Mujtaba Rahman, an analyst for Europe at the Eurasia Group, said in e-mailed comments that the E.C.B.’s announcement should prove important in stabilizing sentiment in the near term, but that “many serious challenges exist regarding the execution and implementation of the bank’s new Outright Monetary Transactions in practice.”Mujtaba Rahman, an analyst for Europe at the Eurasia Group, said in e-mailed comments that the E.C.B.’s announcement should prove important in stabilizing sentiment in the near term, but that “many serious challenges exist regarding the execution and implementation of the bank’s new Outright Monetary Transactions in practice.”
He singled out the “new, more important role” of the E.C.B. Governing Council in signing off on governments’ compliance with their reform programs; the implications for beneficiary countries, and the “disincentivizing impact” that “diminished market pressure could have on euro zone institution-building.”He singled out the “new, more important role” of the E.C.B. Governing Council in signing off on governments’ compliance with their reform programs; the implications for beneficiary countries, and the “disincentivizing impact” that “diminished market pressure could have on euro zone institution-building.”
More immediate challenges include a ruling by the German constitutional court next Wednesday on whether the euro zone’s new bailout fund, the European Stability Mechanism, is in line with Germany’s constitution, and elections the same day in the Netherlands, where voters appear critical of euro zone bailouts.More immediate challenges include a ruling by the German constitutional court next Wednesday on whether the euro zone’s new bailout fund, the European Stability Mechanism, is in line with Germany’s constitution, and elections the same day in the Netherlands, where voters appear critical of euro zone bailouts.
German discontent with further E.C.B. involvement had been widely circulated as details of the proposed bond program leaked out ahead of the Thursday announcement. Jens Weidmann, president of the country’s central bank, the Bundesbank, was the only dissenting vote on the program.German discontent with further E.C.B. involvement had been widely circulated as details of the proposed bond program leaked out ahead of the Thursday announcement. Jens Weidmann, president of the country’s central bank, the Bundesbank, was the only dissenting vote on the program.
Appearing with Prime Minister Mariano Rajoy of Spain in Madrid, Ms. Merkel said Thursday that the E.C.B., in approving the bond-buying plan, was “acting with independence and within the framework of its mandate.”Appearing with Prime Minister Mariano Rajoy of Spain in Madrid, Ms. Merkel said Thursday that the E.C.B., in approving the bond-buying plan, was “acting with independence and within the framework of its mandate.”
But members of her coalition partner, the pro-business Free Democrats, and opposition parties condemned the plan.But members of her coalition partner, the pro-business Free Democrats, and opposition parties condemned the plan.
Frank Schäffler, an expert for financial affairs for the Free Democrats, called for charges against the bank before the European Court of Justice.Frank Schäffler, an expert for financial affairs for the Free Democrats, called for charges against the bank before the European Court of Justice.
“The E.C.B. has not become the bad bank of all worthless papers in Europe,” he said in an interview Friday with Deutschlandradio for Berlin. “What happened yesterday has historical dimensions.”“The E.C.B. has not become the bad bank of all worthless papers in Europe,” he said in an interview Friday with Deutschlandradio for Berlin. “What happened yesterday has historical dimensions.”
But Jörg Asmussen, a close ally of Ms. Merkel who sits on the bank’s executive board and who split with Mr. Weidmann over the bond program, sought to reassure Germans that it would not lead to increased inflation.But Jörg Asmussen, a close ally of Ms. Merkel who sits on the bank’s executive board and who split with Mr. Weidmann over the bond program, sought to reassure Germans that it would not lead to increased inflation.
“It will only be able to happen when a country agrees to strict reform measures,” Mr. Asmussen said in an interview with Berlin’s public radio on Friday. “That is a mandatory, a necessary requirement for our deal.”“It will only be able to happen when a country agrees to strict reform measures,” Mr. Asmussen said in an interview with Berlin’s public radio on Friday. “That is a mandatory, a necessary requirement for our deal.”
Ms. Merkel was to travel Friday to Vienna, where she was to hold talks with her Austrian counterpart, Werner Faymann. Austria often follows the lead of its larger neighbor to the north; its representatives on the E.C.B. board voted in favor of the bond program.Ms. Merkel was to travel Friday to Vienna, where she was to hold talks with her Austrian counterpart, Werner Faymann. Austria often follows the lead of its larger neighbor to the north; its representatives on the E.C.B. board voted in favor of the bond program.
Melissa Eddy reported from Berlin. Melissa Eddy reported from Berlin.