Quantitative Easing, ECB Style

From yesterday’s The Star (excerpt):

ECB spent US$18.8 billion on bond buys last week

FRANKFURT, Germany (AP) - The European Central Bank stepped up its emergency bond purchases last week to keep the eurozone debt crisis from infecting Italy and Spain. The move, however, was accompanied by a warning to governments that the support is temporary.

The 13.3 billion ($18.7 billion) purchases announced on the bank's Twitter feed Monday were double the 6.65 billion spent the previous week.

The bank has been buying Italian and Spanish government bonds since Aug. 8. The purchases hold down the interest yields on the bonds, and have kept bond market turmoil from pushing those countries over the edge while European political leaders struggle to come up with more permanent fixes…

If you’re not clear what this means here’s a primer. In essence, the ECB is printing money – “temporarily” to use their term – to provide short term support to Euro area countries having trouble refinancing their government debt. The ECB is also claiming that they’re “sterilising” their bond purchases, indicating that they’re also issuing their own debt to pull back the implied liquidity injection from the bond purchases into the Euro banking system. In short, if you net off the transactions, the ECB is providing it’s own more credible debt in exchange for the troubled debt of the PIGS.