July 30 - Markets were optimistic policy changes at the European Central Bank would aid the euro zone crisis as concerns grow for Spain and Italy. Joanne Nicholson reports.
The markets have rising expectations of what the European Central Bank is prepared to do to save the euro - and it showed at an Italian bond auction, helping to ease pressure on the country's borrowing costs. Phil Pullella is Reuters' Rome correspondent (SOUNDBITE) (English) REUTERS ROME CORRESPONDENT, PHIL PULLELLA, SAYING: "Particularly the five year bonds went down by about 50, 54 basic points and this basically means that Italy will have to spend a lot less money in financing its debt, servicing its debt." The auction comes a week after the ECB President, Mario Draghi, said the central bank would do whatever it takes for the euro zone. His comments fuelled speculation it would begin trying to fill the void in the bailout fund's firepower by purchasing bonds as it did a year ago when it bought up some of Spain and Italy's government debt. The recession in Spain is deepening and concerns they'll ask for an international bailout are growing. In recent weeks, Spanish bond yields reached record heights, and today, data showed it's economy shrank 0.4 percent. The German finance minister was meeting with his U.S counterpart, Timothy Geithner, in Germany, adding to hopes of some action from the ECB. But some in the market are sceptical. Fidel Helmer is a trader at German bank, Hauck and Aufhaeuser. (SOUNDBITE) (German) TRADER FROM HAUCK & AUFHAEUSER BANK, FIDEL HELMER, SAYING: "The ECB as well as the Fed will flood the markets with more money of which the markets will profit. That is for certain. But whether the situation can be seen as positive on the long run remains to be seen because the influx of money can lead to higher inflation rates." At the weekend, the Eurogroup chairman, Jean-Claude Juncker, said they'd work closely with the ECB to get results. Mario Draghi is due to have talks with the head of the German central bank ahead of a key policy meeting on Thursday. It's thought he may be attempting to garner support for a bond purchasing programme. Joanne Nicholson, Reuters