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Euro central bank to buy Italian, Spanish bonds
Updated August 08, 2011 07:18:16

PHOTO: ECB governors held emergency talks overnight to decide how to tackle the continent's debt crisis (Kimberly Jones, file photo: Flickr)
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MAP: European Union
The European Central Bank (ECB) will intervene on the markets to protect Italy and Spain from an accelerating debt crisis, a monetary source said this morning.

ECB governors held emergency talks overnight to decide how to tackle the continent's debt crisis before the major financial markets open for trading tonight.

After the meeting, the source indicated the bank would buy government bonds of the eurozone's third and fourth biggest economies.

The agreement of the ECB's policy-making Governing Council marked a watershed in the ECB's fire-fighting, after modest bond-buying efforts last week failed to stem contagion to the currency bloc's larger economies.

Officials on the ECB conference call carefully considered the situation in Italy and Spain, and took note of a statement by France and Germany on Sunday stressing their commitment to European financial reforms, the source said.

"The Euro system will intervene very significantly on markets and respond in a significant and cohesive way," the source said, adding the ECB would shortly issue a statement.

As the central bankers conferred, France and Germany issued a joint statement reiterating their support for a deal reached last month to give the euro zone rescue fund expanded powers.

In a move to try to calm jitters about the state of the euro zone, French president Nicolas Sarkozy and German chancellor Angela Merkel welcomed the recent measures announced by Italy and Spain with regard to faster fiscal consolidation.

They say that complete and speedy implementation of the announced measures is the key to restoring market confidence.

They say they are confident the ECB will indicate when further interventions are necessary to maintain the financial stability of the euro zone.

"France and Germany are confident that the ECB analysis will provide the appropriate basis for secondary market interventions as it will help determine the case when financial stability of the euro zone as a whole is at risk," the leaders said.

The euro system comprises the ECB and national central banks of the 17 countries that share the euro single currency.

Twin debt crises in Europe and the United States are causing global market turmoil and stoking fears of the rich world sliding back into recession.

BBC/Reuters