The rise in demand lifted the prices of Italian and Spanish bonds, cutting their yields which represent the return to investors and the cost to the governments issuing them. The news from the debt markets, however, did little to prevent turmoil on Europe's stock markets which extended their earlier, heavy losses before climbing back in response to the positive opening on Wall Street. Sentiment was initially depressed by the release of data showing a slowdown in German export growth. The Federal Statistical Office said exports in June were up by 3.1% to €88.3bn($126bn) on the year, the lowest increase in 16 months. Since the introduction of the euro, Germany's export-led economy has become even more crucial to European growth than it was before. "In June we got to feel the first indications of the decreasing global economic dynamism," said Anton Börner, the head of Germany's exporters' association, who warned that the effect of a slowing US economy would "be felt in the coming months". The Bank of France's monthly industrial survey showed both corporate order books and factory utilisation rates falling for the second month in a row in July.
Access Investments-Building Awareness - European Union-ROMANIA
Wednesday, August 10, 2011
The rise in demand lifted the prices of Italian and Spanish bonds, cutting their yields which represent the return to investors and the cost to the governments issuing them. The news from the debt markets, however, did little to prevent turmoil on Europe's stock markets which extended their earlier, heavy losses before climbing back in response to the positive opening on Wall Street. Sentiment was initially depressed by the release of data showing a slowdown in German export growth. The Federal Statistical Office said exports in June were up by 3.1% to €88.3bn($126bn) on the year, the lowest increase in 16 months. Since the introduction of the euro, Germany's export-led economy has become even more crucial to European growth than it was before. "In June we got to feel the first indications of the decreasing global economic dynamism," said Anton Börner, the head of Germany's exporters' association, who warned that the effect of a slowing US economy would "be felt in the coming months". The Bank of France's monthly industrial survey showed both corporate order books and factory utilisation rates falling for the second month in a row in July.
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The ECB bond buying operation – which could reach €850bn (£740bn) according to analysts at RBS – has also transferred significant risk to the balance sheet of an organisation that has traditionally stuck to its remit of controlling inflation.
Behind the scenes, moreover, it has begun to dictate – and in reportedly meticulous detail – the policies to be followed in one of Europe's biggest economies.
Before mounting the intervention that drove down Italian and Spanish borrowing costs on Monday, the ECB had spent some €75bn buying the debt of Greece, Ireland and Portugal. Under the terms of an agreement struck by eurozone leaders last month, however, the bank's bond-buying powers are to be assumed by a reformed EFSF.
It had been hoped that the changes could be ratified before contagion threatened Spain or Italy. But with parliaments in recess and European leaders on holiday, the overhaul of the fund is unlikely to be approved much before the end of September. "We cannot go any faster," France's finance minister Francois Baroin told Europe-1 radio.
But the latest move appears to have involved the ECB in far more than buying bonds. According to the Italian daily, Corriere della Sera, the bank's president, Jean-Claude Trichet, and his successor-designate, the governor of the Bank of Italy, Mario Draghi, sent a letter to Italy's prime minister, Silvio Berlusconi, at the end of last week dictating the terms on which the ECB was prepared to buy Italy's increasingly costly debt.
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