Leading Irish experts now believe Euro break-up more likely

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The European Central Bank has indicated it may again start buying government bonds to reduce crippling Spanish and Italian borrowing costs but the conditions it set and the dissenting voice of its key German member disappointed markets.

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The European Central Bank indicated on Thursday (2nd. August) it may again start buying government bonds to reduce crippling Spanish and Italian borrowing costs but the conditions it set and the dissenting voice of its key German member disappointed markets.

In the latest move to contain the eurozone crisis, ECB President Mario Draghi indicated that any intervention would not come before September - and only if governments activated the euro zone's bail-out funds to join the ECB in buying bonds.

"The Governing Council ... may undertake outright open market operations of a size adequate to reach its objective," Draghi told a news conference after the central bank's monthly meeting, using the central bank's code for bond-buying.

The ECB kept euro zone interest rates at a record low 0.75 percent but Draghi said the council did consider a further rate cut on Thursday amid signs that an economic recession in peripheral European countries is spreading across the continent.

A Reuters poll of nearly 50 economists after Draghi spoke found that most expect the ECB to start buying Italian and Spanish bonds in September and to cut rates t o 0.50 percent.

Draghi was under intense pressure from investors, European leaders and the United States to deliver on a pledge he made last week to do whatever it takes to preserve the euro by bringing high borrowing costs down.

But shares and the euro fell after the ECB chief's remarks, and Spanish and Italian bond yields jumped, with Spain's 10-year paper vaulting over the 7 percent danger level.

"It is quite disappointing ... There is a lack of any action so he has basically passed the buck back on to politicians," said Ian Smith, strategist at Knight Capital.

So reported Reuters in Frankfurt yesterday. Since last Monday the ECB had hinted that on Thursday Mario Draghi would announce a "game changing" initiative. However his presentation to the press turned out to be a "non-press" conference. No new initiatives were propounded.

On the contrary Draghi intimated that Italy would probably need to avail of a bailout in addition to Spain. Thus the European Stability Fund (ESF) which is supposed to be the great savior of Euro sovereign debt will be 40% "secured" by countries availing of bailouts. Four Euros out of every ten are the ESF contributions to be made by Greece, Portugal, Ireland Cyprus, Spain and Italy. Thus the "Bailout Fund" is in large part being bailed into by those countries actually bankrupt. Talk about the blind leading the blind.

When will this farce end my American colleagues ask? Things have got so bad that two weeks ago the IMF reported that they would no longer contribute to any more ECB bailouts unless radical measures are taken to address the structural problems in the Eurozone. Draghi's presentation on Thursday was in part as a result of this American pressure however, his response was far less than what was expected and accordingly the Euro "crisis" is back on centre stage once again.

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