ECB ‘Shock Troops’ Go It Alone as Investors Question EU Plan

[cory777]

Source: Bloomberg

May 12 (Bloomberg) -- European Central Bank President Jean- Claude Trichet is buying time for the euro region as investors speculate on whether the $1 trillion bailout plan is enough to stop the sovereign debt crisis.

Spanish and Portuguese bonds have rebounded as the ECB snapped up government debt, reversing a rout that threatened the nations’ ability to borrow. At the same time, the euro fell yesterday and stock indexes pared gains on concern about how indebted countries will cut deficits and access aid if needed.

“The game plan is clearly to use the ECB as shock troops to force peripheral bond yields down and rebuild market confidence,” said Marco Annunziata, chief economist at Unicredit Group in London. “If that works, then there might be no need to activate the stabilization fund.”

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“The plan buys time, removes the threat of an immediate funding crisis, but does not alter the macro-economic fundamentals at the heart of the problem,” Paul Marson, chief investment officer of Lombard Odier Private Bank, said. It’s “rather like buying a drunk another drink so that he may defer the hangover.”

Read more: http://www.businessweek.com/news/2010-05-11/ecb-shock-troops-go-it-alone-as-investors-question-eu-plan.html

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keep on drinkin!