European Central Bank May Buy Bonds

Posted September 4th, 2012 at 11:20 am (UTC-5)
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The European Central Bank could act this week to buy the bonds of debt-plagued governments in the 17-nation euro currency zone to ease their borrowing costs.

Bank president Mario Draghi told European lawmakers Monday that buying government securities that have to be paid back in at least three years does not violate any European Union rules. Central bank policy makers are set to meet Thursday and could unveil a new debt-purchasing plan then.

European leaders have struggled to end the continent's debt crisis — now in its third year. Greece, Ireland and Portugal have all been forced to secure international bailouts, while borrowing costs for debt-plagued Spain and Italy have risen as they sold bonds in the world's financial markets. Interest rates on their bonds could be cut if the continent's central bank purchases their debt.

Several European leaders are shuttling between capitals this week to discuss the continent's economic fortunes. On Tuesday, French President Francois Hollande met in Rome with Italian Prime Minister Mario Monti.

Moody's Investors Service on Monday lowered its ratings outlook for the European Union from stable to negative. The credit rating agency said the negative outlook on the EU's long-term rating reflects the negative outlook for Germany, France, Britain and Netherlands, which together account for almost half of the EU budget revenue.

But Moody's maintained the bloc's triple-A rating, citing its “conservative budget management” and “the credit worthiness and support provided by its 27-member states.”

The credit-rating agency did not exclude the possibility of a future downgrade if a “deterioration in the credit worthiness of EU member states” should prompt such a move or an upgrade if the situation improves.