Debt crisis: Europe forced to fill gap as ECB 'refuses' to buy bonds

Since the programme started in June 2010, the ECB had bought ?210.5bn (?170bn) of bonds. But in recent weeks the bank has stopped the SMP, despite Spain's bonds yields tipping over the 7pc danger level and Italian bonds pushing over 6pc.

Experts said markets were unlikely to be convinced by the plan unless Germany agrees to some concessions, particularly giving the ESM a bank licence.

Raoul Ruparel, of Open Europe, said: "With a licence the ESM could borrow from the ECB and then buy bonds. But if it has to issue its own debt in the market before it can buy Spain's or Italy's then the process will be slow and difficult because the markets are already almost closed. It's hard to see how the plan will work without the ESM having a licence."

He added: "The markets may react with relief to this plan because bond yields will come down a bit after the first purchases. But I can't see it being a lasting antidote."

Yesterday Spain was forced to pay 5.074pc to raise ?2.4bn of short-term debt - more than twice the amount it paid last month. Madrid faces a bigger test on Thursday with the auction of longer-term debt.

Stockmarkets rose as traders bet on action from the G20 or the US Federal Reserve. Spain's Ibex rose 2.67pc, Italy's MIB climbed 3.35pc, while the FTSE100 was up 1.7pc.

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