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How the Euro Was Saved by Financial Times

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Peacetime and wartime

The rally in eurozone bonds at the start of 2012 had allowed a bit of complacency to set in within the halls of the central bank’s glass and steel headquarters in the heart of Frankfurt’s financial district. After the ECB provided cash-strapped EU banks more than €1tn in cheap loans to fund their operations in December and February, many Italian and Spanish banks used the cash to purchase their countries’ sovereign bonds, sending them rallying to safe levels.

According to the Bank of Italy, Italian banks purchased more than €28bn in Italian government bonds in January alone. In February, they added another €29.5bn. In March, another €23bn. The results were stunning. By early March, Italian 10-year bond yields had dropped ...

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