Buiter Says ECB to Revive Bond-Buying to Protect Italian Auction This Week
Citigroup Chief Economist Willem Buiter
Kerem Uzel/Bloomberg
“The ECB will intervene on whatever scale is necessary to allow Italy to conduct its auction on Thursday,” Willem Buiter, now chief economist at Citigroup Inc., told reporters in London.
“The ECB will intervene on whatever scale is necessary to allow Italy to conduct its auction on Thursday,” Willem Buiter, now chief economist at Citigroup Inc., told reporters in London. Photographer: Kerem Uzel/Bloomberg
Former Bank of England policy maker Willem Buiter said the European Central Bank will revive its bond-buying program to safeguard this week’s auction of Italian bonds.
“The ECB will intervene on whatever scale is necessary to allow Italy to conduct its auction on Thursday,” Buiter, now chief economist at Citigroup Inc., told reporters in London today. “If the ECB doesn’t come in, the Italian bond auction is likely to fail.”
The ECB said yesterday it refrained from buying government debt for a 15th week after the purchase program issued 74 billion euros ($103 billion) of liquidity in the last 14 months. Italy sells a series of bonds on July 14 with maturities ranging from 2016 to 2026 at a time when investors are pushing up its bond yields amid concern Europe’s debt crisis is spreading.
“What we’re going to have is the ECB are going to be doing the heavy lifting,” said Buiter.
The Frankfurt-based bank may try to get greater guarantees for the debt it buys and will seek to extract “a pound of flesh” from governments by using the purchases to demand they impose greater austerity and avoid steps that could spur credit rating companies to declare a nation is in selective default, he said.
October’s retirement of President Jean-Claude Trichet may make the ECB less dogmatic in its aversion to so-called selective defaults and credit events, Buiter said.
Trichet’s past leadership of the Paris Club, which oversees debt restructurings, likely makes “intolerable” to him the idea that a default could occur on his watch in Europe and successor Mario Draghi will be more pragmatic, he said.
“Logic will be applied instead of dogma and there will be progress,” said Buiter, who expects a restructuring of Greek debt in 2012 at the latest.
To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
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