281 lines
8.3 KiB
Plaintext
Executable File
281 lines
8.3 KiB
Plaintext
Executable File
finance
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financialcrisis
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8177568
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-----
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# ECB bows to German veto on mass bond purchases
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## The European Central Bank has rebuffed calls for mass purchases of
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southern European bonds, despite growing pressure from Spain and Italy for
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dramatic action to buttress monetary union.
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![Jean-Claude Trichet, president of the European Central Bank, pauses at the
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news conference at the ECB headquarters in Frankfurt, Germany,][1]
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Jean-Claude Trichet, the ECB's president, said emergency lending support for
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eurozone banks would be extended until at least April next year
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[![Ambrose Evans-Pritchard][2]][3]
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By [Ambrose Evans-Pritchard][4], International Business Editor 7:15PM GMT 02
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Dec 2010
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[Comments][5]
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Jean-Claude Trichet, the ECB's president, said emergency lending support for
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eurozone banks would be extended until at least April next year, citing "acute
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tensions" in the market.
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The delay removes the risk that Frankurt might soon pull away the prop holding
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up the Irish and Greek banking systems, as well as the Spanish cajas - or
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savings banks - and the sovereign states behind them. Traders say the ECB
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intervened directly in the weakest bond markets on Thursday to drive down
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yields and calm nerves.
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However, Mr Trichet said there had been no decision to step up purchases of
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peripheral bonds to a whole new level - the so-called "nuclear option" -
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despite the potentially dangerous rise in Spanish, Italian, Belgian and even
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French yields over the past three weeks.
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Some credit market analysts had speculated that the ECB might launch a blitz
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of €1 trillion to €2 trillion of debt purchases, but this was never likely at
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this stage. Such action is anathema to Germany.
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Rainer Bruderle, the German economy minister, spelled out Berlin's objections
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on Thursday just hours before the ECB meeting, insisting that "the permanent
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printing of money is not a solution".
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## Related Articles
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* [Euro collapse 'possible' amid deepening divisions over bail-out][6]
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06 Dec 2010
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* [Euro falls after ECB disappoints hopes for more action][7]
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02 Dec 2010
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* [ECB decision to extend bond-buying lifts markets][8]
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03 Dec 2010
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* [EMU requires 'nuclear response'][9]
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01 Dec 2010
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* [Contagion strikes Italy as Ireland bail-out fails to calm markets][10]
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29 Nov 2010
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* [Germany faces awful choice as Spain wobbles][11]
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29 Nov 2010
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A chorus of influential voices in Germany has warned that any attempt by the
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ECB to prop up Club Med with loose money would be a grave error, undermining
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German political support for monetary union.
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"It would be fatal if the ECB was to squander its credibility," said Klaus
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Zimmerman, head of the DIW German Economic Research Institute. He said the
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bank is the last bastion of credibility after the serial breach of EU fiscal
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and debt rules.
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"Broader purchases of the distressed eurozone debt would calm speculation for
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a short time, but would just invite risk-taking by investors in general," he
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said.
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Thomas Mayer from Deutsche Bank said that if the ECB is put in a position of
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having to buy up to €2 trillion of debt to support Spain and Italy, it will
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cross a ruinous line. "If the ECB is thrown into the fire, who knows what will
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happen," he said.
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Separately, key figures from the major parties on the Bundestag's finance
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committee renewed calls for debt restructuring for Greece, Ireland and
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Portugal, with "haircuts" for creditors.
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Lothar Binding from the Social Democrats said it was becoming "very difficult"
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to keep explaining to taxpayers why they should provide fresh money to these
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countries at a time of welfare cuts at home. He warned that the chasm between
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Europe's northern and southern nations had grown impossibly wide and that
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sooner or later the common currency might have to split in two.
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Julian Callow from Barclays said the ECB is caught between irreconcilable
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pressures from Germany and Europe's high-debt states. "The ECB has to be very
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careful. The more bonds it buys from the eurozone periphery, the more clearly
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they are circumventing the EU's 'no bail-out' clause. This is unconstitutional
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in Germany, which is why the EU had to come up with the complicated
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arrangement of a bail-out fund working with the IMF," he said.
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The ECB is already facing a complaint at the German constitutional court over
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the €67bn of Greek, Irish and Portuguese bonds that it has bought so far. A
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ruling is expected in February.
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Mr Callow said EU leaders need to think in entirely different terms, using the
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European Investment Bank to launch a "New Deal" of infrastructure and
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investment projects in stricken states. There is no treaty law against this,
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and it would help pull them out of debt-deflation traps and a self-defeating
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cycle of austerity that erodes their ability to grow back to health.
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What is at stake politically for Germany is whether the ECB will remain
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faithful to the legacy of the Bundesbank. The German nation gave up its
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Deutschmark and agreed to share its admired monetary regime under an unspoken
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but sacred contract that the euro would never lead to disorder or inflation.
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To breach this contract is to risk a powerful German backlash.
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Yet those closer to southern Europe's frightening funding crisis are afraid
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that matters will go from bad to worse very quickly unless the ECB pulls out
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all the stops, despite the market rally on Thursday.
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"The ECB must launch a massive purchase of eurozone debt without delay," said
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Professor Simon Sosvilla from Madrid's Complutense University. He will have to
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wait a few weeks yet.
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http://www.telegraph.co.uk/finance/financialcrisis/8177568/ECB-bows-to-German-
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veto-on-mass-bond-purchases.html
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Telegraph
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## [Financial Crisis][17]
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* ### [Finance »][18]
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* ### [Ambrose Evans-Pritchard »][3]
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* ### [News by Sector »][19]
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* ### [Banks and Finance »][20]
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* ### [Business Latest News »][21]
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In finance
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[![Truncheon-wielding police in Barcelona have clashed with protesters at a
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makeshift camp that is one of dozens erected in Spain to protest at high
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unemployment][22] ][23]
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### [Spanish anti-crisis protests][23]
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[![Thousands of protesters occupy Puerta del Sol square in Madrid][24] ][25]
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### [Huge protests in Madrid][25]
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[![Riot police use tear gas as protesters throw petrol bombs in Athens][26]
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][27]
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### [Tear gas and petrol bombs][27]
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[![Irish bank stress tests: the key points][28] ][29]
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### [Irish bank stress tests: key points][29]
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[![Q&A: What is the Independent Commission on Banking?][30] ][31]
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### [Q&A: What is the Independent Commission on Banking?][31]
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[X][12] Share & bookmark
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[What are these?][13]
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Share:
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* [ ][12]
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* [ ][14]
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* [ ][15]
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* [Tweet][16]
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* Advertisement
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![][32]
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telegraphuk
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Please enable JavaScript to view the [comments powered by Disqus.][33] [blog
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comments powered by Disqus][34]
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[![][35]][36]
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