ECB sharply curtails government bond purchases

The ECB said it settled 603 million euros' ($793 million) worth of government bonds, down from 2.677 billion euros one week earlier.

"Trading has calmed down," allowing ECB officials to achieve a marked effect with relatively small amounts of purchases, ING senior economist Carsten Brzeski told AFP.

Trading was "so thin right now that they would not need to spend a lot to manipulate the markets," he said.

The latest amount represented the fewest purchases of sovereign debt under the ECB's controversial Securities Markets Programme since late October, when they virtually ceased for three weeks.

The prior amount was the highest level since the programme's first weeks amid a Greek crisis in May and represented central bank efforts to help buy time for the Irish government to resolve its own crisis.

German central bank governor Axel Weber shocked many with public criticism of the ECB purchases, but Brzeski said it seemed that more bank officials were now of the view that the programme should be wound up as soon as possible.

"Increasingly they are all becoming Axel Webers," he joked.

The ING economist said ECB policymakers were reluctant to spend a lot on risky sovereign debt and were only doing it now to help "bridge political indecisiveness."

"The ECB does not consider itself to be the eurozone's crisis manager," he said, adding that politicians are the ones responsible for grapplining with national solvency problems.

The ECB has warned governments that it does not intend to assume all of the risk that eurozone members could default on their debts.

The bank last week unveiled the biggest capital increase in its 12-year history to protect against potential losses.

Subscribed capital is to be nearly doubled to 10.76 billion euros through contributions from member central banks, which means the money will come essentially from eurozone capitals.

The ECB does not identify whose bonds it buys but it is widely believed to be focusing on debt issued by Greece and Ireland -- which have been bailed out by the EU and International Monetary Fund -- and by Portugal, which has come under increasing pressure to follow suit.

Since the ECB programme was launched, the central bank has bought government bonds worth around 72.5 billion euros in total, it said Tuesday.

Brzeski said the programme's next big tests would begin in January and run through March, when Portugal is to make payments on its bond's coupons.

"Everyone is looking at Portugal as the next victim," he noted. "I think this is the crucial test."