Newspaper article International Herald Tribune

E.C.B. Chief Lays out Plan for Aiding Weak Nations ; Strategy Will Center on Purchases of Debt to Ease Borrowing Costs

Newspaper article International Herald Tribune

E.C.B. Chief Lays out Plan for Aiding Weak Nations ; Strategy Will Center on Purchases of Debt to Ease Borrowing Costs

Article excerpt

One day after Mario Draghi briefed lawmakers on plans to intervene in the bond markets to lower debt costs for Spain and Italy, European leaders were continuing discussions among themselves.

European leaders crisscrossed the Continent on Tuesday for a series of meetings on strategies for dealing with the sovereign debt crisis, a day after the president of the European Central Bank seemed to set the stage for a policy announcement scheduled for later in the week.

Speaking to members of the European Parliament in a closed-door meeting Monday, Mario Draghi, the E.C.B. president, made clear his plans to buy short-term government bonds on secondary markets, according to lawmakers who were present. By intervening in the secondary market, the central bank could help Italy and Spain keep a lid on their borrowing costs, which at times in recent months have neared levels considered unsustainable in the long term.

By short-term, Mr. Draghi said, the debt maturities would be one to three years, said one of the lawmakers present, who spoke on condition of anonymity because the meeting was supposed to be private. Mr. Draghi's comments appeared to be laying the groundwork for a much-anticipated announcement after the monthly policy meeting of the E.C.B. on Thursday.

Mr. Draghi did not specifically mention Italy and Spain, or other euro zone members facing funding difficulties, the lawmaker said. And Mr. Draghi did not say when the purchases would begin, according to a second lawmaker who attended the meeting, and who also spoke on condition of anonymity. Instead, Mr. Draghi emphasized that any such purchases would fall within the E.C.B.'s mandate to manage price stability within the euro area, the lawmakers said.

Growing concern over the Continent's inability to bring its debts under control was reflected in a decision by Moody's Investors Service to cut the European Union's credit outlook to negative on Monday. The move reflected the risks the debt crisis poses to the four E.U. members that have so far held on to their top credit ratings: Britain, France, Germany and the Netherlands.

Risks of a downgrade to the European Union's sovereign debt rating come from a "deterioration in the creditworthiness of E.U. member states," Moody's said. "Additionally, a weakening of the commitment of the member states to the E.U. and changes to the E.U.'s fiscal framework that led to less conservative budget management would be credit-negative."

European leaders on Tuesday continued the shuttle diplomacy they began last week. Angela Merkel, the German chancellor, met with Herman Van Rompuy, the E.U. president, in Berlin. No details were released about their discussion, which had been expected to focus on ideas proposed in June for how to create structures to strengthen Europe's economic and monetary union, including the establishment of a pan-European banking regulator. …

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