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Emergency meeting agrees ECB to buy Spanish bonds

Mon 8th Aug 2011

EU bankers are hoping emergency action to improve the finances of Italy and Spain will prevent further unrest in the financial markets over the course of the day.

After a weekend of meetings designed to prevent a repeat of last week's market meltdown, ECB president Jean-Claude Trichet announced plans to activate a bond-purchase programme to restore confidence.

A conference call held between banking officials from all 17 Eurozone countries last night agreed that the ECB will buy Italian and Spanish bonds in the hope of staving off the interest yields which continue to threaten their shaky budgets.

The UK's Chancellor, George Osborne, has also urged all eurozone countries and institutions to deliver on their promises to restore financial stability, but warned that far wider "decisive, co-ordinated action" will be needed for a permanent solution.

His comment, in the fprm of a letter to the Daily Telegraph, went on to say how it was time for eurozone countries to accept the "remorseless logic of monetary union that leads from a single currency to greater fiscal integration" – possibly including the creation of eurobonds backed by the whole 17-nation bloc rather than individual states.

Michael Hewson, an analyst at CMC Markets, commeted that the eurozone leaders seem incapable of dealing with the problem swiftly and needed to take decisive action to restore confidence to markets.

Buying up Italian and Spanish bonds would only be a stop-gap measure and would not tackle the root cause of the problem, which is excessive debt, said Mr Hewson.

However, David Miller, a partner at Cheviot Asset Management, was less pessimistic. He said: "On balance the markets are unlikely to go up, but a meltdown is not on the cards."

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