ECB unveils new bond-buying scheme

The European Central Bank unveiled a new bid to save the euro on Thursday, with a fresh programme to buy bonds from indebted eurozone countries. German Chancellor Angela Merkel travelled to Spain to reassure Prime Minister Rajoy.

ECB unveils new bond-buying scheme
Photo: DPA

Echoing remarks issued by German and Spanish leaders almost simultaneously in Madrid, ECB president Mario Draghi said the central bank would buy unlimited volumes of bonds with maturity of up to three years.

He spoke after the bank kept its main interest rate unchanged at 0.75 percent and downgraded growth forecasts for the 17-nation bloc.

“We will do whatever it takes” to keep the eurozone together, Draghi said, stressing that “unfounded fears are just what they are, unfounded.”

Spanish Prime Minister Mariano Rajoy, who hosted German Chancellor Angela Merkel for talks, said that Madrid and Berlin would also do what it takes to “resolve the euro crisis”.

Merkel stressed that “we have to restore confidence in the euro as a whole.”

Draghi unveiled a new central bank instrument known as Outright Monetary Transactions (OMTs) in secondary markets for sovereign bonds, but stressed that governments would also have to fulfill strict conditions.

The programme, which would replace a previous much-contested one called SMP, would cover sovereign bonds with maturities of up to three years, Draghi told a news conference here.

The bank has set no limit to the volume of bonds it will purchase under the new programme, he added.

“As we said a month ago, we need to be in the position to safeguard the monetary policy transmission mechanism in all countries of the euro area.”

The OMTs “will enable us to address severe distortions in government bond markets which originate from, in particular, unfounded fears on the part of investors of the reversibility of the euro,” Draghi said.

At the same time, “governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial market circumstances and risks to financial stability exist,” an ECB statement explained.

It referred to two eurozone financial rescue packages that were expected to work in conjunction with the ECB by buying longer-term bonds, if necessary.

“The adherence of governments to their commitments and the fulfilment by the EFSF/ESM of their role are necessary conditions for our outright transactions to be conducted and to be effective,” the ECB said.

Draghi acknowledged that the decision to launch OMTs was not unanimous, with opposition in particular from German central bank governor Jens Weidmann widely known.

The central bank chief insisted that in launching the new programme, the ECB was acting “strictly within our mandate to maintain price stability over the medium term.”

It was acting “independently in determining monetary policy and the euro is irreversible,” he said.

Meanwhile, the bank also downgraded its eurozone growth forecasts to a contraction of 0.4 percent in 2012 followed by growth of 0.5 percent in 2013, a reduction from its previous call in June of minus 0.1 percent for this year and plus 1.0 percent next year.

The new ECB programme replaces its Securities Market Programme, launched in May 2010.

Via that programme, the ECB has accumulated €208.5 billion in bonds from Greece, Ireland, Portugal, Italy and Spain.

Following the ECB announcement, the euro declined slightly to $1.2592 while European stock markets showed solid gains, and Spanish bond yields slid.

Berenberg Bank economist Holger Schmieding commented that “after one year in which the ECB allowed turmoil in sovereign bond markets to obstruct the transmission of its monetary policy, the ECB is now addressing the core issue in the Eurozone crisis.

“By turning itself into an ‘effective backstop’ for countries that meet tight conditions on fiscal repair and pro-growth reforms, the ECB signalled today more clearly and in much more detail than before that it will not let any solvent euro member go bust.”


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Sleep, seaside, potato soup: What will Merkel do next?

 After 16 years in charge of Europe's biggest economy, the first thing Angela Merkel wants to do when she retires from politics is take "a little nap". But what about after that?

Outgoing German Chancellor Angela Merkel briefly closes her eyes and smiles at a 2018 press conference in Berlin.
Outgoing German Chancellor Angela Merkel briefly closes her eyes at a 2018 press conference in Berlin. Aside from plans to take "a little nap" after retiring this week, she hasn't given much away about what she might do next. Tobias SCHWARZ / AFP

The veteran chancellor has been tight-lipped about what she will do after handing over the reins to her successor Olaf Scholz on December 8th.

During her four terms in office, 67-year-old Merkel was often described as the most powerful woman in the world — but she hinted recently that she will not miss being in charge.

“I will understand very quickly that all this is now someone else’s responsibility. And I think I’m going to like that situation a lot,” she said during a trip to Washington this summer.

Famous for her stamina and her ability to remain fresh after all-night meetings, Merkel once said she can store sleep like a camel stores water.

But when asked about her retirement in Washington, she replied: “Maybe I’ll try to read something, then my eyes will start to close because I’m tired, so I’ll take a little nap, and then we’ll see where I show up.”

READ ALSO: ‘Eternal’ chancellor: Germany’s Merkel to hand over power
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‘See what happens’
First elected as an MP in 1990, just after German reunification, Merkel recently suggested she had never had time to stop and reflect on what else she might like to do.

“I have never had a normal working day and… I have naturally stopped asking myself what interests me most outside politics,” she told an audience during a joint interview with Nigerian writer Chimamanda Ngozi Adichie.

“As I have reached the age of 67, I don’t have an infinite amount of time left. This means that I want to think carefully about what I want to do in the next phase of my life,” she said.

“Do I want to write, do I want to speak, do I want to go hiking, do I want to stay at home, do I want to see the world? I’ve decided to just do nothing to begin with and see what happens.”

Merkel’s predecessors have not stayed quiet for long. Helmut Schmidt, who left the chancellery in 1982, became co-editor of the weekly newspaper Die Zeit and a popular commentator on political life.

Helmut Kohl set up his own consultancy firm and Gerhard Schroeder became a lobbyist, taking a controversial position as chairman of the board of the Russian oil giant Rosneft.

German writer David Safier has imagined a more eccentric future for Merkel, penning a crime novel called Miss Merkel: Mord in der Uckermark  that sees her tempted out of retirement to investigate a mysterious murder.

German Chancellor Angela Merkel forms her trademark hand gesture, the so-called “Merkel-Raute” (known in English as the Merkel rhombus, Merkel diamond or Triangle of Power). (Photo by Tobias SCHWARZ / AFP)

Planting vegetables
Merkel may wish to spend more time with her husband Joachim Sauer in Hohenwalde, near Templin in the former East Germany where she grew up, and where she has a holiday home that she retreats to when she’s weary.

Among the leisure activities she may undertake there is vegetable, and especially, potato planting, something that she once told Bunte magazine in an interview in 2013 that she enjoyed doing.

She is also known to be a fan of the volcanic island of D’Ischia, especially the remote seaside village of Sant’Angelo.

Merkel was captured on a smartphone video this week browsing the footwear in a Berlin sportswear store, leading to speculation that she may be planning something active.

Or the former scientist could embark on a speaking tour of the countless universities from Seoul to Tel Aviv that have awarded her honorary doctorates.

Merkel is set to receive a monthly pension of around 15,000 euros ($16,900) in her retirement, according to a calculation by the German Taxpayers’ Association.

But she has never been one for lavish spending, living in a fourth-floor apartment in Berlin and often doing her own grocery shopping.

In 2014, she even took Chinese Premier Li Keqiang to her favourite supermarket in Berlin after a bilateral meeting.

So perhaps she will simply spend some quiet nights in sipping her beloved white wine and whipping up the dish she once declared as her favourite, a “really good potato soup”.