Italy: ECB Set For Bond Buy-Up To Boost Eurozone

Italy's finance minister has said he expects the European Central Bank (ECB) to embark on the purchase of government bonds in a bid to pep up demand in the eurozone.

Such a move has been seen as somewhat unlikely because Germany, the eurozone's largest and most important economy, has always been opposed to such a measure.

However, speaking exclusively to Sky News, Pier Carlo Padoan said he nonetheless expected the ECB to press ahead with eurozone sovereign debt purchases.

He said: "I think there is common agreement about that fact that all instruments including monetary policy must be used especially if we see increasing signs of weakness in the euro area."

Mr Padoan, a former chief economist at the influential Organisation for Economic Co-operation and Development (OECD), was speaking after Mario Draghi, the ECB president, gave his strongest hint yet that he was prepared to take what has, until now, been regarded as a dramatic step.

Speaking at a banking congress in Frankfurt, Mr Draghi said he saw no sign of economic improvement in the eurozone in coming months ahead and signalled that the ECB would step up its programme to pump more money into the currency bloc.

The ECB has, to date, been buying financial products known as asset-backed securities (ABS) and covered bonds rather than embarking on full-blown quantitative easing of the kind practised by the US and the UK due to opposition from the German government.

Mr Draghi said: "We will continue to meet our responsibility - we will do what we must to raise inflation and inflation expectations as fast as possible, as our price stability mandate requires of us.

"If on its current trajectory our policy is not effective enough to achieve this, or further risks to the inflation outlook materialise, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases."

Responding to Mr Draghi's comments, Mr Padoan said: "I'm afraid Mario Draghi is signalling a real problem that is the disappointing performance of the European economy, especially the euro area. We've been revising down growth forecasts over the past few months.

"Certainly more action from the ECB is welcome, but that's not enough - we need to do other things on the government side, as well."

City economists said Mr Draghi's speech, which sent both the euro and yields on eurozone government bonds lower, was almost as dramatic intervention as his famous promise, in the summer of 2012, to "do whatever it takes" to heal the eurozone crisis.

Nick Kounis, an economist with ABN Amro, said: "Draghi all but announced that the central bank will step up monetary easing soon. Mr Maybe has become Mr Definitely."

But David Owen, chief European financial economist at broker Jefferies International, said: "For many [bond] investors, the bar for doing QE may still seem relatively high, with the ECB keen to see how the ABS programme in particular develops - clearly a focus in Draghi's speech today - so QE may remain much more of a 2015 story."