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The latest episode of Berlusconi is an economical one: the Italian Prime Minister obeys orders from the ECB, which in turn promises to buy some bonds. Italy will accelerate more reforms that include spending cuts. A promise to lower the raging yields helps EUR/USD bounce back.

Yesterday, the ECB returned to the markets and bought peripheral bonds – but just of Portugal and Ireland. This weak move, that wasn’t unanimously agreed in Frankfurt, eventually sent the whole world down: risk currencies, commodities and stock markets plunged. It now seems that Trichet got what he wanted with Berlusconi on his knees:

The ECB was able to dictate the terms in which it will buy bonds: cuts to welfare programs, more “flexible” labor laws, austerity measures and a “golden rule” preventing high debt in Italy’s  constitution. Silvio Berlusconi celebrated his new measures, but he, and Italy’s citizens, have no reason to be happy. TEuro domino

The ECB is the factor in the market with the tools to act, and act now. Trichet ruled out quantitative easing – a massive bond buying program that could ease tensions. It is still to be seen if he is serious with buying Italian bonds, and pushing their yields lower. Italian 10 year bond yields closed to the week above 6%.

But forex markets are live and kicking: EUR/USD is now touching 1.43, after breaking the 1.4282 line. Resistance appears at 1.4325, followed by 1.4375. It jumped from around 1.4160 before the news broke out.

For more on EUR/USD, see the euro to dollar forecast.

Also Spanish yields, which are lucky to be under Italian yields for a change, are still above 6%. And also for Spain, the ECB is willing to help – but under its specific conditions.

Update: Berloscuni says that the G-7 will meet in a matter of days.

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