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European Central Bank to Buy Government Bonds

The European Central Bank President Mario Draghi announces the ECB will leave interest rates unchanged and will buy the bonds of debt-ridden countries in the euro currency union, in Frankfurt, Germany, September 6, 2012.
The European Central Bank says it is going to buy the bonds of the debt-ridden countries in the euro currency union in hopes of easing their borrowing costs.

The bank set no limit Thursday on the volume of the bonds it plans to buy, in Europe's latest effort to resolve the three-year debt crisis. The bank also kept its benchmark lending rate unchanged at three-quarters of one percent as the 17-nation eurozone economy continues to contract.

European and U.S. stock markets moved sharply higher after the central bank announced its bond-buying program.

Bank chief Mario Draghi said the bond purchases are aimed at ending sharp swings in interest rates for financially troubled countries, such as Spain and Italy, as they sell their bonds on world financial markets. The central bank hopes that its purchases of notes not only will stabilize the rates, but also will reduce them.

Draghi said the euro currency system is "irreversible." He attributed the volatility of the European government bond market to "unfounded fears on the part of investors of the reversibility of the euro."

Although the central bank said there is no limit on the amount of national bonds it may purchase, the issuing governments must agree to repay those notes within three years.

Greece, Ireland and Portugal already have been forced to secure international bailouts, and similar assistance has been extended to Spain's beleaguered banks. Analysts have voiced fears that the Madrid and Rome governments could be next, since their borrowing costs until recently have approached the levels that forced other countries to seek rescue packages.