The debt buying plan that Italian ECB leader Mario Draghi is going to put in place aims to give more time to Spain and Italy and other countries with credit problems so that they can make necessary adjustments and reforms without being penalized with higher debt interest rates.
This is the main problem for countries trying to meet their obligations, because they face continually rising debt costs. Eyeing the United States Federal Reserve's policy to buy long-term debt, the European Central Bank (ECB) will buy near-term debt on the secondary market in order to comply with Germany's orthodox standards. The Germans view long-term debt purchases as drug-like safety purchases.
At this point we should watch how the risk premium behaves in the near term. A good indicator, it has fallen to settle at 208 basis points.
