ECB buys 1.35 billion euros in government bonds

29th November 2010, Comments 0 comments

The European Central Bank said Monday it bought nearly twice as much government debt last week as it had a week earlier amid Ireland's worsening debt crisis that threatened to spread to Portugal and Spain.

The ECB said it purchased 1.35 billion euros (1.76 billion dollars) worth of government bonds last week, nearly double the 713 million euros in public debt purchased the previous week and the highest level since late September.

ING senior economist Carsten Brzeski told AFP the spike in purchases was not a surprise and underscored "that there were hardly any buyers of Irish bonds. The only buyer was the ECB."

The central bank has been buying government bonds since May to stabilize eurozone debt markets that have been hit by fears that some of the bloc's weaker members could face insolvency.

Since then, the ECB has purchased some 67 billion euros worth of bonds as part of a programme aimed at capping rates that governments must pay to borrow money.

Brzeski forecast that ECB bond purchases would decline this week owing to a debt rescue agreement reached by Ireland with the European Union and International Monetary Fund.

Ireland is to benefit from an 85-billion-euro bailout to which Dublin itself will have to contribute 17.5 billion euros.

Ireland becomes the second eurozone country after Greece to seek financial aid from the EU and IMF, and markets are now switching their focus to Portugal, and then on Spain, the fourth largest economy in the eurozone.

The ING economist supposed the ECB had pressured Dublin to accept the rescue package and its strict conditions so as to reduce the European central bank's exposure to potential losses on its growing portfolio of public debt.

© 2010 AFP

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