MUNICH – In August, the European balance-of-payments crisis moved beyond the Eurozone’s periphery and began buffeting Italy. Interest spreads for Italian government bonds began to rise, Prime Minister Silvio Berlusconi’s administration was alarmed enough to implement an austerity program, and the European Central Bank helped with extra liquidity.
The ECB directed the central banks of all Eurozone members to buy huge quantities of Italian government bonds during the crisis. While the national central banks have not revealed how much they bought, the aggregate stock of all government bonds purchased rose from €74 billion ($102 billion) on August 4, to €165 billion this month. Most of this increase was probably used to purchase Italian government bonds.