Eurozone leaders have vowed to do “whatever it takes” to ensure the euro area’s stability. The European Central Bank’s decision to buy Italian and Spanish bonds makes it the only eurozone institution to match such slogans with actions. The rest of the eurozone governing system – its elected heads of governments above all – must now show equal determination in order to solve this existential crisis.
The ECB was right to reactivate its Securities Markets Programme, through which it has earlier made outright purchases of Greek, Irish, and Portuguese government bonds. The central bank justifies its decision not in terms of keeping yields down but of safeguarding the efficacy of the monetary transmission mechanism. This is understandable. Unlike monetary debt financing, there is no legal shadow over the ECB’s authority to make monetary policy work. It is surely in the public interest that it should try to do so: it is hard to control credit conditions through banks that are squeezed by collapsing market values for their core assets.
But the main purpose – and what markets have been baying for – is to pre-empt a bond buyers’ strike which would send Madrid’s and Rome’s borrowing costs spiralling out of control. This should be the overriding priority of all eurozone policymakers. Leaving the ECB to address it alone is politically and economically too risky.