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The Eurozone Crisis — 2009 to 2015

The ECB and Whatever It Takes

Explain what the European Central Bank did in the crisis, what it offered in 2012, and what happened to borrowing costs afterwards and why.

Before you start

What you'll be able to answer

  1. What did the European Central Bank do to calm the crisis before July 2012?
  2. What did the ECB promise in 2012, and on what conditions?
  3. What followed the offer, and why was it challenged?

Where this sits

The Eurozone Crisis — 2009 to 2015 · this module is lit

  1. 21 Oct 2009Greece revises its 2009 deficit figure sharply upward
  2. May 2010Euro area governments and the IMF agree Greece's first rescue loan, EU governments agree to create rescue funds, and the ECB starts buying government bonds
  3. 28 Nov 2010Ireland agrees a rescue programme
  4. May 2011Portugal agrees a rescue programme
  5. Dec 2011 and Feb 2012The ECB makes two rounds of three-year loans to banks
  6. Mar to Apr 2012Private holders of Greek bonds take a cut of more than half in face value
  7. 20 Jul 2012Euro area ministers approve a loan to rebuild the capital of Spain's banks
  8. 26 Jul and 6 Sep 2012The ECB's president promises "whatever it takes"; the ECB announces a plan to buy struggling governments' bonds
  9. Mar to Apr 2013Cyprus takes rescue loans, while uninsured depositors, shareholders and bondholders meet the capital needs of Cyprus Popular Bank and the Bank of Cyprus
  10. Jun to Jul 2015Greece shuts its banks as savers rush to withdraw money, voters reject the lenders' terms, and euro area leaders agree to move towards a third programme

London, July 2012

On 26 July 2012 Mario Draghi, the president of the European Central Bank (ECB), the central bank for the euro area, spoke to investors in London. Lenders were demanding more interest from Italy and Spain. Governments borrow by selling bonds, which are promises to repay with interest. Draghi told the room: "Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough." The mandate is the job EU law gives the ECB.

Predict first

What could the ECB do to help a government that lenders no longer trusted?

The ECB buys bonds from 2010

In May 2010 the ECB began buying government bonds. It said the purchases were meant to repair markets that had stopped working, so that its interest rates reached borrowers across the euro area. It bought them from investors, not governments: bonds of five euro area countries in all. Heavy buying pushes bond prices up, and because a bond's interest is fixed, a higher price means a lower rate for the buyer. Paying for bonds added money to the banking system, and some countries worried this would add to inflation, rising prices, so the ECB drew the same amount back out.

Italy and Spain, August 2011

In August 2011, as lenders turned on Italy and Spain, both governments announced budget cuts and reforms. On 7 August the ECB signalled that it would buy their bonds. The next day Italy's ten-year borrowing cost, the yearly interest it paid to borrow for ten years, fell to 5.28 per cent, and Spain's to 5.16 per cent. The relief did not last: in December 2011 Italy's averaged 6.81 per cent.