Member Article

Overnight Euro recovery follows ECB bond-buying scheme

Mario Draghi’s scheme to bolster the Eurozone boosted markets across Europe, as the FTSE rose 2%.

The European Central Bank (ECB) president revealed a bond-buying plan that encouraged markets to a six month high, as Spain’s Ibex increased 4.9%, Italy’s MIB rose 4.3%, France’s CAC was up 3% and Germany’s Dax closed with an improvement of 2.9%.

London’s stock market saw a rise of 2.1%, as Draghi’s scheme gave countries the confidence to break the ongoing deadlock, despite doubts from economists, and Germany in particular.

The ECB’s outright monetary transactions (OMTs) will allow for unlimited purchases of government bonds, and bonds bought by ECB will not have superiority over those bought by other creditors.

OMTs will be used as a “backstop” to help the Euro to recovery, while Mr Draghi’s programme rallied Asian markets overnight, as China’s Shanghai Composite rose 3.7%.

Graeme Leach, chief economist at the Institute of Directors flagged up potential problems with the OMT scheme, despite immediate positive reactions in international markets.

He said: “The ECB’s decision to enter secondary bond markets could be the game changer the IoD has long argued for. But there’s a hitch. ECB action is conditional and depends on countries such as Spain signing up for even more austerity.

“The key question is whether more austerity is politically possible with 25 per cent headline and 50 per cent youth unemployment.”

This was posted in Bdaily's Members' News section by Miranda Dobson .