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Security tight as ECB meets in Barcelona
Protests expected in Spanish city in the absence of hopes of any support mechanisms emerging from the meeting.
Last Modified: 03 May 2012 10:29
Draghi will focus on options to save Spain's economy amid protests outside the meeting venue in Barcelona [Reuters]

The European Central Bank is meeting in the Spanish city of Barcelona to do more to fight the eurozone crisis, but there are not high hopes for new support mechanisms to come out of the event.

Rather, the meeting on Thursday is expected to be met with large protests that could result in violence, as locals are unhappy with the bureaucratic solutions that have been imposed thus far.

The planned protests at the ECB's tough stance towards eurozone countries have prompted officials to step up security.

The frustration arises from tough austerity measures that Spain is pursuing to shape up its public finances and a grim economic picture, which is affecting the broader eurozone.

Preliminary eurozone purchasing managers' (PMI) data released last week - and since confirmed - showed the euro area's private sector slump deepened in April at a faster pace than any economist polled by Reuters news agency predicted.

Markets wondering

The prospect of the eurozone as a whole following Britain into recession has set markets wondering whether the ECB could pave the way for a rate cut later this year.

It has never before lowered its main rate below one per cent.

Financial markets are clamouring for the ECB to step up its efforts to fight the two-year crisis by buying the sovereign bonds of Spain, which is in recession and is struggling to convince some of its people of the need for further austerity.

However, ECB policymakers are more likely to pay homage to the country's drive to cut costs than to signal any new policy action like restarting the "bond-buy" or Securities Markets Programme (SMP).

The bank has left the plan dormant for the last seven weeks despite a rise in Spanish yields to six per cent. A break above that, to seven per cent, is considered an unsustainable price to pay for refinancing its debt.

The ECB will almost certainly leave its main interest rate on hold at a record low of one per cent, though markets will be listening for any hint that the bank could be ready to cut later this year if the euro zone economy deteriorates further.

Bundesbank resistance

Mario Draghi, ECB president, faces resistance from Germany's powerful Bundesbank to any potential interest rate cut or a reactivation of the bond-buy programme, which the central bank could use to lower Spanish bond yields.

Jens Weidmann, Bundesbank chief, told Reuters news agency last month that Spain should take the rise in its bond yields as a spur to tackle the root causes of its debt woes and not look to the ECB to help by buying its bonds.

A Reuters poll taken last week showed three-quarters of economists saw the ECB restarting its bond purchases within the next three months.

However, in a separate poll, most money market traders said the bank would not buy more bonds.

With Spain sinking into recession in the first quarter, much attention at Draghi's post-meeting news conference will focus on what more - if anything - the ECB might do to promote growth.

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