FRANKFURT, Germany — The European Central Bank is for now the eurozone's only battle-ready weapon against the market turmoil that is nudging Italy — and the entire 17-nation currency bloc — to the brink of financial disaster.
But although its program to buy the bonds of indebted governments such as Italy theoretically has unlimited financial power, the ECB is unwilling to use it aggressively, saying it's up to governments to get their finances straightened out.
Defining the ECB's role in the crisis has become urgent because Europe has no other effective backstop to contain its raging debt crisis and give indebted countries the months — and years — they need to pass new legislation and fix their finances.
The eurozone bailout fund, which governments recently gave new powers to shore up confidence in government bond markets, was meant to be the main tool to protect economies like Italy. But European officials need more time to finalize it.
The crisis meanwhile is worsening by the day, with Italy's bond yields this week jumping above 7 percent, the level that eventually pushed Greece, Ireland and Portugal to ask for rescue loans.
Higher borrowing rates mean the country pays more to raise money to pay off old loans — last year its average borrowing rate was 4 percent. The higher costs add to its debt pile, worsening its financial prospects in a vicious cycle.
European officials need a way to keep Italy's borrowing rates down while the country labors to pass reforms to cut deficits and improve growth, a job that will take time.
Options are limited. Their new eurozone bailout fund, the EFSF, isn't ready yet and may not have enough lending power. Eurozone governments have balked at adding more money, so they are looking at ways to increase the existing €440 billion ($600 billion) in financing to over €1 trillion by allowing it to partially insure against losses on government bonds.
Such an insurance scheme has yet to be finalized, however, and might not cover Italy's massive financing needs — €300 billion next year alone.
Alternatively, eurozone countries could jointly issue eurobonds, effectively linking the finances of stronger countries with weaker ones. But Germany, which is already funding the bulk of the existing bailouts, has made it clear that eurobonds are not an option.
That leaves the ECB. The bank has intervened in markets at critical moments during the debt crisis and again this month. Analysts say the ECB likely helped bring Italy's bond yields down somewhat on Thursday.
But while the ECB might lend a hand in moments of panic, it has made clear it is not in the business of protecting countries from the consequences of poor financial planning.
New ECB president Mario Draghi said forcefully last week that the bank wasn't going to ramp up the purchases and that it was up to governments to do what needed to be done to save themselves.
He said it would be "pointless" to expect the ECB to bring down rates long-term, insisting the purchases are temporary and limited. If a country's economic plans are credible, that will be reflected in the country's market borrowing rates.
The question these days, however, is not only one of principle but speed. Drafting, approving and implementing economic reforms can take weeks or months, whereas market movements can change a country's prospects in a matter of minutes.
This week's increase in Italian bond yields, for example, will cost the country an added €60 billion ($82 billion), or 4 percent of GDP, to roll over its debt through 2015 if they don't come back down. That's almost the size of Rome's most recent austerity plan.
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