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European Actions May Help Cut US Losses

August 8, 2011

US Debt DowngradeOne event that helped keep U.S. futures from falling even further last night was a European Central Bank’s statement that it would fully support Italy and Spain through bond purchases.

Though not mentioned directly in its communique, it is clear that those two nations are the immediate targets for intervention. There had been some wavering on a broad bond purchases program commitment on Friday, largely at Germany’s insistence. Late Sunday, however, the German government released a statement supporting the program.

This will put the ECB in a much more activist mode than has existed to date, a major departure from the monetary union’s hallmark of clear responsibility by each nation for its own internal funding matters.

The action puts the ECB into more of a Federal Reserve mode, but across national borders. The details of the program were still relatively scant yesterday, but they did help bolster the euro against the dollar.

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