As things continue to look pretty dire for the European Union, the European Central Bank (ECB) signaled yesterday it will make purchases of huge amounts of bonds from Spain in the next few days in an effort to contain the eurozone crisis. The ECB will also make similar purchases of Italian bonds.
With the bond purchases, the EU is hoping it can boost bonds and drive down interest yields, temporarily stopping the threat to both Spanish and Italian budgets. The fear is both Spain and Italy will come under market attacks if something like this ECB bond buyout isn’t implemented. The bond buyout will give theEU time to put together a bailout plan to help the economies of both countries, and stave off any attacks.
Yesterday’s ECB decision came a week after $2.5 trillion being wiped off global stock markets. This morning, Asian markets are already down 1% and continuing to fall, with first reactions of the United States’ credit rating downgrade. The ECB needs to begin purchasing bonds quickly if Spanish and Italian markets aren’t going to see a similar fate when markets open later today.