2012-09-06 10:27:26
Mario Draghi, president of the European Central Bank, is expected to unveil
details of a new bond-buying plan later, aimed at easing the eurozone's debt
crisis.
In July, Mr Draghi had said that he would do "whatever it takes" to save the
euro.
The ECB is expected to help cut the borrowing costs of debt-burdened eurozone
members by buying their bonds.
However, Germany's Bundesbank is vigorously opposed to the idea.
Jens Weidmann, the Bundesbank president, is concerned member states could
become hooked on central bank aid and fail to reform their economies
sufficiently.
But the majority of the 23 ECB council members are expected to support the
plan.
The bond markets are hoping for Mr Draghi to put flesh on the bones of an idea
that has been widely trailed in the run-up to the latest meeting.
Start Quote
When the Governing Council of the European Central Bank meets on Thursday, the
bankers will know that many regard it as the most important meeting in the
bank's history
Gavin Hewitt Europe editor
Several questions remain unanswered.
For example, will the ECB put a cap on the amount it is prepared to spend or
will the bond-buying be unlimited? Will ECB intervention be conditional on a
eurozone member first formally requesting financial aid from existing bailout
funds? And what type of bonds will the ECB buy?
If such questions are not answered, the markets could be disappointed, some
analysts are warning.
"Our expectation is that we get some more information but not all the
parameters today, so if the market is looking for even more than the leaks
suggested already, then the potential for disappointment is definitely there,"
said Norbert Aul, rate strategist at RBC Capital Markets.
Mr Draghi is hoping that ECB intervention in the bond markets will help reduce
the borrowing costs of debt-laden countries such as Spain and Italy and lessen
the likelihood of them needing to ask for a full sovereign bailout, an
eventuality that could bankrupt the eurozone and cause the collapse of the
euro.
Spain, which has already asked for 100bn euros ( 79bn) in state aid to help its
debt-stricken banks, is currently paying yields of 6.42% on its 10-year bonds,
while Italy's 10-year bond yields are 5.51%, below the critical 7% figure
thought likely to trigger a sovereign bailout request.