Some good news came out over the weekend from Europe that lifted hopes of investors that the euro zone debt contagion may be contained after the European Central Bank signalled it would buy Italian and Spanish debt through the revival of its bond-buying program and pledged to “actively implement” it.
After Italy and Spain pledged that they will implement new austerity measures based on deficit cutting and economic reforms, the ECB agreed to implement the euro zone rescue fund to take responsibility for bond-buying.
Late Friday’s downgrading of the United States’ AAA credit rating by Standard & Poor’s added urgency to efforts to control euro zone debt contagion. European leaders went into a frenzy and made phone consultations to discuss ways of reducing the risk of global financial meltdown and to calm market fears.
ECB President Jean-Claude Trichet called the Sunday meeting of the policy-setting Governing Council to decide on buying Italian paper after Prime Minister Silvio Berlusconi announced new measures on Friday to speed up deficit reduction and hasten economic reform.
German Chancellor Angela Merkel and French President Nicolas Sarkozy said they were committed to getting approval from their parliaments for new powers for the European Financial Stability Facility rescue fund by the end of September, that will allow secondary market intervention.