Europe’s leaders plan a week of intensive shuttle diplomacy to help defuse the continent’s debt crisis, as Der Spiegel magazine reported that the European Central Bank is considering a plan to put a cap on bond yields.
As the debt crisis continues to threaten the global economy, French President Francois Hollande and German Chancellor Angela Merkel will meet in Berlin on Aug. 23. Greek Prime Minister Antonis Samaras travels to the German capital the next day before going on to Paris on Aug. 25.
The talks come as the ECB fleshes out plans to curb the turmoil in European bond markets, a move that would give governments time to push through measures to revamp their economies. The ECB’s governing council may decide at its next meeting in early September to set yield limits on the debt of each country, German news magazine Der Spiegel reported yesterday, without saying where it got the information.
A cap “could be a major step to defuse tensions in the eurozone and buy time for the fiscal repair and pro-growth reforms to work,” said Holger Schmieding, chief economist at Berenberg Bank in London. An ECB official declined to comment on the Spiegel report.
A plan to set a target on bond yields would involve the ECB using its power to print money, Spiegel said. The central bank would publish the volume of purchases for each country, the magazine said.
ECB President Mario Draghi is trying to overcome opposition from Germany’s Bundesbank to a new bond-purchase plan. Announced on Aug. 2, Draghi said any ECB bond-buying would work alongside euro-area bailout funds and only if countries applied for support and accepted strict conditions in return. Italy and Spain, the countries now at the heart of the crisis as borrowing costs soar, have yet to say whether they will request ECB help.
Italian and Spanish bonds rose after the Spiegel report. The yield on Spain’s 10-year government bond fell 14 basis points to 6.27 percent as of 9:38 in Madrid, while the yield on Italian 10-year bonds was 5.73 percent, down 4 basis points.
Spanish Economy Minister Luis de Guindos urged the ECB to deploy unlimited bond buying in the secondary market, according to an interview with Spanish news agency Efe on Aug. 18. Terms for the assistance will be discussed at a euro-area ministers’ meeting in the second week of September.
A successful ECB plan could also help shelter Spain and Italy from any further turmoil from Greece as officials send mixed signals about their willingness to stump up more funds.
German Finance Minister Wolfgang Schaeuble said Aug. 18 that the sovereign-debt crisis mustn’t become a “bottomless pit” for his country. “There are limits,” he said, ruling out another aid program for Greece. At the same time, two German lawmakers said last week that Merkel is considering easing Greece’s bailout terms.
Greece’s troika of international creditors -- the ECB, the European Commission and the International Monetary Fund -- will return to Athens in early September to assess progress as the Samaras administration seeks to hammer out 11.5 billion euros in budget cuts for 2013 and 2014.
Greece may need to cut as much as 14 billion euros over the next two years to meet its deficit targets due to setbacks in planned privatizations and lower tax income, Spiegel reported separately, citing an interim troika report. An IMF spokeswoman based in Washington declined to comment on the report.
“There’s a process we’re engaged in to evaluate the efforts made by Greece in recent months, which we know was set back by elections,” France’s European Affairs Minister Bernard Cazeneuve said yesterday. “It’s important to let the Greeks express their request clearly, to let the Troika report and then to hold discussions between European countries to find the right position.”