The incoming head of the European Central Bank threw the euro zone a lifeline hours before a crucial summit today by signalling the bank would go on buying troubled states' bonds to combat market turmoil.
Mario Draghi delivered the message that financial markets have been waiting for about ECB intentions as leaders of the 17-nation single currency area struggled to agree a convincing comprehensive plan to resolve the region's sovereign debt woes.
"The Eurosystem (of central banks) is determined, with its non-conventional measures, to prevent malfunctioning in the money and financial markets creating an obstacle to monetary transmission," he said in typically coded ECB language in a speech text released in Rome.
Mr Draghi, who will succeed Jean-Claude Trichet on November 1st, made clear that measures could only be a temporary expedient and said it was up to governments to tackle the roots of the debt crisis that began in Greece two years ago.
However, his statement appeared to rebuff pressure from Germany's powerful Bundesbank for the ECB to end the bond-buying programme which prompted the resignation of the two most senior German ECB policymakers this year.
The second euro zone summit in four days, due to start at 6.30pm Irish time, seems unlikely to produce a detailed masterplan despite Franco-German assurances that a "comprehensive solution" to two years of debt turmoil would be found.
The leaders may agree on broad outlines but leave crucial details, including the numbers on a Greek debt write-down and on funds available for financial fire-fighting, for later negotiation among finance ministers.
A European Commission spokesman said there would not be detailed numbers on all aspects of the political agreement.
Governments and banks are still haggling over the scale of write-offs private bondholders will have to take on their Greek debt holdings, sources familiar with the negotiations said.
Investors stayed cautious awaiting the summit outcome, with the euro inching higher against the dollar and European shares slightly up on the day.
Reuters
