The Bundesbank will resist calls for the ECB to expand purchases of bonds

Yesterday the first page of the FT assumed that ECB President Trichet seems to be less opposed to additional purchases of European bonds and peripheral markets, which was followed by an exhalation of relief in the right environment. By lunchtime spreads PIGS to the Bund were 30-35 points at the long end, while the euro was above 1.31. For those who have made good money by selling the euro in the past two weeks, and just the day before the ECB meeting, this article has become a trigger to cover short positions. There were also suggestions that the ECB may be inclined to provide a loan to fund EFSF 2 trillion.

euros, which can be characterized as the second part of "shock and awe" from European officials, as they desperately seek to draw a line under this latest debt crisis. It is not clear whether the ECB is ready to expand its program to repurchase assets (now 67 billion euros), monetary instruments, which made a strong passions within the ECB, particularly among the Bundesbank. What could have happened last week, so this is what the ECB is very powerfully pressed during the discussion of Ireland's aid package. While Trichet is in itself probably would prefer to minimize the program or at least not increase, the ECB may assume that a non-functioning markets provide some justification for intervention in peripheral markets, especially if they are completely sterilized. The Bundesbank is particularly opposed to any expansion of the program buying bonds - he rightly takes the position that the ECB takes on its balance sheet more credit risk, and that he reiterated the Central Bank is required to save wasteful periphery. However, further purchases of bonds by the ECB in the existing scales are not a panacea for the current debt crisis - is nothing more than yet another patch for the euro used a broken leg.