As part of its efforts to fight the euro crisis, the European Central Bank (ECB) is considering establishing caps on interest rates for government bonds in individual countries as part of its future bond-buying program. Under the plan, the ECB would begin purchasing government bonds from crisis-hit countries if yields for those bonds exceeded the interest rates for benchmark German sovereign bonds by a predetermined amount. This would signal to investors which interest rate levels the ECB believes to be appropriate.Got that? If "speculators" decide that there is no way on God's green Earth that profligate, socialist fiscal basket cases like Spain and Italy will ever pay their bills and they want to cash out at any price, the ECB will step in, print Euros like there's no tomorrow and buy them up.
Given that it can print money itself, the central bank has access to unlimited funds, which could make it extremely difficult for speculators to continue driving yields up beyond the amount stipulated by the ECB.
The Spaniards think this is a grand idea.
Calls for such action are growing. In an interview with state-owned news agency EFE, Spanish Economics Minister Luis de Guindos called for the ECB to purchase unlimited amounts of Spanish sovereign bonds on the capital markets.Unlimited. Now that's decisive action!
The best part is that it works!
Update: The Spanish newspaper El Pais is reporting that the ECB has denied that they have decided to embark on this plan. The Bundesbank is also opposed to it.
In response, the ECB quashed speculation as to how it plans to act. “It is absolutely misleading to report on decisions that have not yet been taken and also on individual views, which have not yet been discussed by the ECB’s Governing Council, which will act strictly within its mandate,” Bloomberg quoted an ECB spokesman as saying. “As far as recent statements by government officials are concerned, it is also wrong to speculate on the shape of future ECB interventions,” the statement said.