European leaders frustrated Jean Claude Trichet bid to provide his central bank with an exit from its role as buyer of last resort of bonds from struggling debt-strapped euro nations.
In a deal to reinforce their bailout fund struck at 1:30 a.m. in Brussels on March 12, the leaders of the 17 euro nations agreed to let the European Financial Stability Facility buy bonds directly from governments, while declining to authorize the purchase of bonds in the open market or allow it to finance debt buybacks by governments.
The decision may sharpen differences between Trichet, president of the European Central Bank, and elected officials over steering the euro region out of the financial crisis and preventing a relapse. Trichet has also advocated tougher enforcement of budget-deficit rules, saying March 3 that current proposals “fall short of the necessary quantum leap.”
The euro leaders’ decision to buy bonds in the primary markets “looks to be an alternative to providing liquidity loans, rather than taking over the role of secondary market support that the ECB has been doing,” David Mackie, JPMorgan Chase Co.’s London-based chief European economist, said in a March 12 note. “It looks like the ECB has failed in its attempt to have the EFSF take over this task.”
The euro rose against the dollar today and was up 0.3 percent at $1.3941 as of 7:53 a.m. in London. Bonds were little changed, with the yield on the German 10-year bund at 3.21 percent. ‘Right Direction’
Trichet signaled a lack of enthusiasm with the measures, which are due for final approval at a March 24-25 summit and include easier terms for the Greek rescue and an increase in the EFSF’s firepower to its full amount of 440 billion euros ($612 billion).
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