Eurozone crisis: From deutschmark to lira?


Spain's deputy minister for trade, Jaime Garcia Legaz, believes his country can repay its debts without help from the ECB

Is Thursday's announcement from the European Central Bank a turning point in the eurozone debt crisis?

Some investors clearly think so. The key word in the announcement was "unlimited". The central bank will do whatever it takes to keep the borrowing costs of vulnerable countries down. That is what makes this bond-buying plan different from what came before.

The markets have applauded. Finally, in their view, the ECB is acting as the bank "of last resort". It has become the "fully effective backstop to avoid destructive scenarios".

The objections of the German Bundesbank have been brushed aside. The bank's president, Jens Weidmann, was left to issue a statement that he regarded the bond purchases as "tantamount to financing governments by printing banknotes".

That is now the charge that has been laid on the table: that the essential character of the bank has changed.

Mr Draghi, the president of the ECB, was asked at his news conference whether, in effect, the ethos of the bank was now more "lira" than "deutschmark".

Of course the bank insists it is operating within its rules but they have become more flexible. I noted that the French finance minister said that saving the euro was part of the bank's mission. That certainly gives the bank plenty of flexibility.

So all eyes turn to Spain and Italy, two countries that were regarded as too big to bail out.

'Strict conditions'

This new ECB programme is designed to help keep their costs down. If they decide to ask for help they will have to approach the eurozone's bailout fund and ask it to buy their bonds at auction. That would enable the ECB to spring into action and buy bonds on the secondary market until it was satisfied it had pushed down borrowing costs far enough.

"Strict conditions" will be attached to requests for help from the bailout fund but who will judge how strict they are? Will they be similar to the bailout programmes that Greece, Ireland and Portugal operate under? Or will this be bailout lite?

The IMF will monitor any agreement. One of the least convincing parts of the Draghi plan is that countries who backed off on their commitments might find the ECB stops buying their bonds. That would only expose a country to punitively high borrowing costs, triggering a crisis that this plan is designed to avoid.

Spain will be under pressure to ask for help. It needs to cover 30bn euros (£24bn; $38bn) in debt repayments in October. But Madrid is not ready to jump. Since the ECB announcement it has already seen its borrowing costs fall. Senior Spanish officials are wondering whether the mere existence of the ECB plan may be enough for them to avoid having to use it.

The key for Madrid is to avoid any rescue that comes with further conditions. The government will fight very hard not to end up with a full bailout programme.

The Deputy Minister for Trade, Jaime Garcia Legaz, was making the case that Spain did not need extra help. He said that exports to countries outside the eurozone were growing fast. Wage competitiveness was returning, as was a current account surplus. There was, in his view, enough good news to justify a pause before seeking a rescue.

This is an important moment in the eurozone crisis. The ECB has played its strongest card. It will certainly buy time. It should be remembered, however, that the eurozone economy will deteriorate further in the months ahead and that will once again challenge most of the assumptions that a corner has been turned.

Gavin Hewitt Article written by Gavin Hewitt Gavin Hewitt Europe editor

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  • Comment number 218.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 217.

    196 Britpris

    --and more CCTV cameras than North Korea ?

    "EUp: I doubt if you have accurate figures on that."

    Why would the ´Telegraph´ lie to you ? (#190)

    25 % of the worlds CCTV cameras --is not more than North Korea Has ?

  • rate this

    Comment number 216.

    Careful. We talk about the "basket cases" of southern Europe but the UK is very close to joining them. Too many civil servants on overly generous pensions, a burgeoning welfare state and a health service that cant meet its obligations. And what has Cameron done so far - nothing to stem the flow. Watch out UK! next stop ECB?

  • rate this

    Comment number 215.

    199 Lucy

    "I don't think any country who is in EU is even allowed death penalty?"
    ALLOWED death penalty? For the same reason we have banned witchcraft trials and heretic burning.

    The only countries outside of the 'enlightened' USA where the state legally murders people are third world countries in Asia and Africa.

    Now even your president sends out assassination squads.

  • rate this

    Comment number 214.

    #213 SGM

    --Societies (countries) are in various stages of ´development´--which ones (you know) have attempted to be ´fair´ ?

    --and which ones not ?

  • rate this

    Comment number 213.

    90 years ago, Antonio Gramsci (imprisoned by Mussolini's Fascists) coined the term Cultural Hegemony. Ever wondered why the vast majority buy into the ruling elite's agenda, when it's clearly against their interests ? And asked, how can this be changed ? PLEASE look up Gramsci, and learn. He's more relevant today than ever.

  • rate this

    Comment number 212.

    The original 6 signing Treaty of Rome (1956, basis of EU) voluntarily fly European flag beside national flags & have steady% believing full union inevitable if distant. Fewer have this opinion in countries joining later. In Britain few people have this shared experience & no one in America does. You might think they are deluded, but these are their views & they will determine what happens.

  • Comment number 211.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 210.

    Why are a bunch of hopelessly misinformed, by their appalling and unintellectual media no doubt, "debating" the merits of euro/EU on BBC? Why can't they imagine any other way EU might operate than their own models: Pledge of Allegiance, hand to heart nationalism? And don't start with the historic crimes, you haven't a snow flake's chance in hell of coming out of that unscathed.

  • rate this

    Comment number 209.

    #207 DB

    -The EEC worked well because there was plenty ´free money flying around´ and with no questions asked.

    When the Euro came and the AAA status with it -- the rest is history.

    The Euro showed the stealing and corruption to be on a massive scale.

    --all subsidies should be stopped --with no return to the EEC --that was the introduction to it all.

    --Everybody on their own !

  • rate this

    Comment number 208.

    #205 Britpris

    --lollipops finished ?

    --withdrawal symptoms ?

    --For all your rantings -- Merkel is preventing the British Govt. from giving you a promised referendum ?

    -- Is THAT what you have been saying for years ??????

    -- Or could someone else please translate his English ?

  • rate this

    Comment number 207.

    @204 Contrary to your prediction, Europe won't disappear- 10,000 years from now, Europe will still be where it is now, it won't have disappeared at all. The EU, however, is another matter entirely. It is a total failure and deserves to be consigned to history's dustbin. The EEC worked very well, the EU doesn't and must go, ditto for the euro- and the sooner the better for all concerned.

  • rate this

    Comment number 206.

    From Deutschmark to Lira or from ashes to ashes, dust to dust?

    If you Euros were starving & I sent you a banana & it wasn't curved enough or too curved & you were starving, would you eat it?Would they let you?I think they'd prefer you starve than eat a banana that had the wrong curvature.It's the European way of life.Ha, bananas!After they're done with you, you'll be lucky to taste fish again

  • rate this

    Comment number 205.


  • rate this

    Comment number 204.

    A day is coming, I don't know if it will 5 or 10 years away or tommorow but it is coming when Europe will come to an end.Considering the crimes it has committed over the centuries on every corner of the earth, every continent, nearly every nation, it should be celebrated as a world holiday. I don't care what day it comes, it will be welcome.If Europe had its way we would revert to 500 years ago

  • rate this

    Comment number 203.

    margaret howard

    And don't even mention the upkeep of the house of Windsor!

    EUp: They are expensive but nowhere as expensive as the "EU"

    The "EU" is the most important thing to get rid of. Other changes are less important.

  • rate this

    Comment number 202.

    I presume that it is not a coincidence that the financial crisis came shortly after the imposition of the Lisbon Treaty in which those who pull the strings in the "EU", people like Bafrroso and Merkel, showed their complete and utter contempt for democracy and the people they are supposed to serve.

    Large protests in Thessaloniika with people calling for an uprising and policemen joining them.


  • rate this

    Comment number 201.

    margaret howard
    8 Minutes ago

    192 Euro

    We seldom do referenda here, we have elections instead.

    EUp: We were promised a referendum and that is the basis on which those people were elected.

    Give us a referendum!

  • rate this

    Comment number 200.

    194 Euro

    "That is largely the fault of his useless "EU". Every penny of his (Barosso) wages is a waste of money."

    The 700 members of our unelected House of Lords claim £300 daily allowance plus the huge expense of flunkies etc. The US with a population 5x of ours has an upper house of 100 senators!

    And don't even mention the upkeep of the house of Windsor!

  • rate this

    Comment number 199.

    Marg: Just like the federal US in fact (death penalty etc)

    I don't think any country who is in EU is even allowed death penalty?

    So EU has already overrode you+you are following their rules on that one

    Its ironic tho cause' back in the day France+Great Britain were notorious for beheadings+executions

    The Times they are a changin'


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