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Europe Debt Plan Raises Hopes, With Much To Do


This is WEEKEND EDITION from NPR News. I'm Scott Simon. Once again, this week, European officials sat down and tried to figure out what to do about the debt crisis, and once again, they came up with a plan that they say will help heavily indebted countries, including Spain and Italy, turn a corner. Investors seemed to like the plan. Stock prices rose, but the plan still faces hurdles, including a major court ruling in Germany next week.

NPR's Jim Zarroli joins us from Berlin. Jim, thanks for being with us.


SIMON: And what exactly did the European Central Bank approve on Thursday?

ZARROLI: Well, I think this plan could represent something of a turning point in the crisis, as I'm sure you know, the problem in parts of Europe right now is that some countries own too much. Investors don't think they can pay it off, so that drives up interest rates. One of the things that a central bank can do to help is try to drive down interest rates by buying up a lot of bonds from these countries.

Now, the ECB has been doing this, but a lot of people think it's been, you know, too tentative, hasn't been aggressive enough and that's because a lot of people in Europe think the ECB shouldn't be in the business of trying to bail out countries that borrow too much. But I think as this downturn has dragged out, some of the resistance has worn down, and this week, the head of the ECB, Mario Draghi, was finally able to overcome some of these objections and really get a much more aggressive bond-buying program in place.

SIMON: How's it more aggressive than the bond-buying programs that have proceeded it?

ZARROLI: It won't just help any country. The countries have to agree to participate in some kind of program to show that they're getting their finances in order. Now, there's a big question about whether countries like Spain and Italy will want to be dictated to like this as sovereign nations, and that's big problem because, you know, Spain and Italy are huge economies in Europe.

But the ECB, I think, has the attitude that it has to set some terms. It has to answer some of the critics in places like Germany, who say, you know, we can't throw good money after bad.

SIMON: One of the words, I gather, that's been tossed around in connection with this plan is sterilization. What does that mean in this context?

ZARROLI: Well, that's basically another step that the ECB is taking to try to address some its critics. It basically means that if the ECB buys a bond, it will take an equal amount of money out of circulation someplace else. In other words, it won't pay for the bonds just by printing money, which scares a lot of people because it can lead to higher inflation.

The U.S. Federal Reserve has a dual mandate, as people always say. It has to worry about inflation. It also has to worry about creating the conditions for job growth. But the ECB is really just supposed to worry about keeping prices stable. Now, a lot of people think that's, you know, one of the reasons why Europe has had so much trouble emerging from this financial crisis, that the ECB could have been more aggressive, could have done more, but was holding its fire, so to speak.

SIMON: So does this plan signal that the ECB, the European Central Bank, is going to become more aggressive?

ZARROLI: Well, I think it means, you know, a lot of people are trying to get the ECB to be more active. There still are hurdles. The big one this week is Germany's top court is going to rule on whether German money can go into the stabilization fund that is used to help rescue. I think the feeling is the court is going to say yes, it can be used that way, but it could set conditions that could really complicate what the ECB wants to do.

And even if they don't this bond buying program isn't going to solve Europe's problems. I mean, Mario Draghi was really explicit about that this week. It's really just a way of keeping interest rates down while European leaders try to fix the economy. Europe has a lot of problems. It has a single currency like the United States, but unlike the United States it doesn't have the kinds of political institutions to manage it.

So, you know, it has a lot of work to do. So the bond buying program is really - I guess you'd just say kind of a place-saving, a time-saving device, but it is a step forward.

SIMON: NPR's Jim Zarroli in Berlin. Thanks so much.

ZARROLI: You're welcome. Transcript provided by NPR, Copyright NPR.