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30 July 2012

Bloomberg: Draghi on offensive as game-changer sought in crisis


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European Central Bank President Mario Draghi has gone on the offensive as he seeks a game-changer in the battle against the sovereign debt crisis.


Draghi, who sparked a global market rally last week by pledging to do whatever it takes to preserve the euro, is trying to build consensus among governments and central bankers for a plan to ease borrowing costs in Spain and Italy before ECB policymakers convene on August 2. He meets with US Treasury Secretary Timothy Geithner in Frankfurt and is also attempting to win over Bundesbank President Jens Weidmann, a critic of ECB bond purchases.

Draghi’s proposal involves Europe’s rescue fund buying government bonds on the primary market, buttressed by ECB purchases on the secondary market to ensure transmission of its record-low interest rates, two central bank officials said July 27 on condition of anonymity. Further ECB rate cuts and long-term loans to banks are also up for discussion, one of the officials said.

“We have reached a decisive point”, said Jean-Claude Juncker, who heads the group of euro area finance ministers, in an interview with Germany’s Sueddeutsche Zeitung. “The world is talking about whether there will still be a eurozone in the next few months. We have to make abundantly clear with all available resources that we’re completely determined to guarantee the financial stability of the currency.”  Juncker confirmed that the temporary bailout fund, the European Financial Stability Facility, is working with the ECB on a plan to reduce borrowing costs, adding “we have no time to lose”, the newspaper reported yesterday.

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