Frankfurt/Paris: The European Central Bank (ECB) will decide on Sunday evening whether to buy Italian government bonds to try to speed up cuts in euro zone debt, ECB sources said as global leaders conferred by phone on the twin financial crises in Europe and the US.
After a week that saw $2.5 trillion (Rs 112 trillion) wiped off the global stock markets, political leaders are under pressure to reassure investors that Western governments have both the will and ability to reduce their huge and growing public debt loads.
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ECB president jean-claude trichet wants the policy-setting Governing Council to take a final decision on buying Italian paper, after Prime Minister Silvio Berlusconi announced new measures on Friday to speed up deficit reduction and hasten economic reforms, one ECB source said.
The source said that if the ECB council opted to intervene on Italy at a crucial conference call starting at 1700 GMT, the ECB and national central banks would start buying Italian bonds when markets open on Monday.
Another ECB source said that the council would also look at possible emergency liquidity measures to prevent money markets freezing.
A third ECB source said the ECB meeting had been put back into the evening to see what measures the US was ready to take to assuage markets after credit ratings agency Standard and Poor’s downgraded Washington’s AAA rating to AA+ on Friday.
The ECB reactivated its controversial sovereign bond-buying programme last Thursday but has so far purchased only small quantities of Irish and Portuguese bonds, seeking tougher austerity measures from Italy.
Berlusconi’s plans entail moving up a balancing of the budget by one year to 2013, enshrining a balanced budget rule in the constitution and pushing through welfare and labour market reforms after talks with trade unions and employers.
The debt crises on either side of the Atlantic, with the latest shock coming from the US downgrade, are wreaking market turmoil and stoking fears of the affluent world sliding back into recession.
South Korea said finance deputies from the Group of 20 major economies addressed the European crisis and US sovereign rating downgrade on Sunday morning in Asian time zones.
A Japanese government source said finance leaders from the Group of Seven big developed economies would also discuss the crisis and may issue a statement afterwards, although the timing of such a call was unclear.
French President Nicolas Sarkozy, who chairs the G7/G20 group of leading economies, conferred with Britain’s Prime Minister David Cameron on Saturday.
“They discussed the euro area and the US debt downgrade. Both agreed the importance of working together, monitoring the situation closely and keeping in contact over the coming days,” a spokesman for Cameron said.
A White House economic adviser castigated ratings agency Standard and Poor’s for cutting the US credit rating to AA-plus from AAA. The US Treasury said the rating agency’s debt calculations were wrong by some $2 trillion.