updated 8/9/2011 6:26:01 AM ET 2011-08-09T10:26:01

The head of the European Central Bank on Tuesday defended his institution's decision to help stabilize the bonds of Spain and Italy, but indicated that the ECB doesn't see itself as the eurozone's lead firefighter for long.

Major Market Indices

"It is the worst crisis since World War II and it could have been the worst crisis since World War I if leaders hadn't taken the important decisions," ECB President Jean-Claude Trichet said in an interview with French radio station Europe.

Story: Europe leads global markets back from brink

Trichet didn't directly confirm that the ECB has been buying up the bonds of Italy and Spain , saying only that his banks "is in the secondary market" for eurozone bonds and that it would release the amounts invested on Monday, as it does every week.

Yet the markets on Tuesday again showed clearly that the ECB was buying up the debt of the eurozone's third and fourth largest economies.

International Market Indices

The yield, or interest rate, on Spanish 10-year bonds dropped below 5 percent, after approaching 6.5 percent just a week ago. The yield on Italian equivalents was at 5.1 percent, also more than 1 percentage point below where it was Monday morning before the ECB intervention.

The ECB head also indicated that his bank still sees the main responsibility for fighting the debt crisis with eurozone governments and not the central bank.

Image: A stockbroker works at the stock exchange in Frankfurt, Germany
Fredrik Von Erichsen  /  AFP - Getty Images
A stockbroker works at the stock exchange in Frankfurt, Germany, on Tuesday.

"I won't say" how long the ECB will buy bonds on the secondary market, Trichet said. "What we expect is that the governments do what we consider to be their job."

He said eurozone countries needed to implement recently taken decisions to allow their bailout fund to buy government bonds on the open market "as rapidly as possible."

Story: Wave of worry threatens to build on itself

Italy and Spain, meanwhile, have to deliver on their promises to cut their budgets as the central bank has demanded, Trichet said.

Despite the ECB's reluctance to take a central role in fighting the debt crisis, analysts have warned that it may not be easy for the bank to halt its bond-buying program once the eurozone bailout fund has been equipped with its new powers.

They caution that the euro440 billion European Financial Stability Facility does not have enough money to intervene effectively on secondary markets to help large countries like Italy and Spain, and that divisions among countries, which all have to sign off on intervention, could delay any necessary action.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Video: Markets plunge after US debt downgrade

  1. Transcript of: Markets plunge after US debt downgrade

    MATT LAUER, co-host: But let's begin on a Tuesday morning with Monday's bloodbath here on Wall Street . CNBC 's Maria Bartiromo was here amid all the chaos. Maria , good morning to you.

    MARIA BARTIROMO reporting: Good morning, Matt. Stocks plummeted overnight in Asia , Europe is following suit this morning as fear dominates Wall Street . Now the focus turns to the Fed. And investors are hoping for some good news later today after suffering the worst day in two years. Investors reacted to the first ever downgrade of US credit fast and furious on what became the worst day on Wall Street in two years. Now Tuesday's Fed meeting is critical as pressure mounts for Ben Bernanke and his fellow policymakers to consider fresh stimulus for the economy or face the threat of another recession.

    Mr. ART CASHIN (Director of Floor Operations, UBS): There's concern that the S&P downgrade may do something to consumer confidence and thereby ease us a little closer to the infamous double-dip that everybody's worried about.

    BARTIROMO: Midday Monday, the president tried to inject confidence into the market.

    President BARACK OBAMA: Our problems are imminently solvable and we know what we have to do to solve them.

    BARTIROMO: But as the president was talking, the Dow was tanking, selling off another 400 points after his speech, ending the day down 600 or 5.5 percent. S&P president Deven Sharma defended the downgrade in an exclusive on CNBC . Why downgrade the debt when it's actually about the political process?

    Mr. DEVEN SHARMA (Standard Poor's President): Yes. The political process becomes important because that speaks to how this fiscal and economic and monetary choices are being made. That influences the credit worthiness .

    BARTIROMO: Adding to the drama, the European Central Bank was trying to avert a further spiral there by buying bonds of Italy and Spain . With money moving out of stocks, investors shifted into other assets viewed as safe havens such as gold. It closed at a record, above $ 1700 an ounce. Investors also flocked to Treasuries , focusing on a weak economy and the prospect of low rates for some time to come, instead of the downgrade of credit.

    Mr. DANIEL GROSS (Economics Editor, Yahoo! Finance): In theory, when S&P downgrades your credit you should dump those bonds. It means you're less likely to get paid back. But the US government is exceptional in this way because nobody believes the US is going to default.

    BARTIROMO: And by the close of trading Monday, investors had lost $1 trillion in value, one reason they're hoping for some good news from Ben Bernanke and company later today , Matt.

    LAUER: All right, Maria , thanks. We're joined now by your colleague Jim Cramer , also at CNBC .

    JIM CRAMER reporting: Morning, Matt.

    LAUER: Jim , good morning to you.

    CRAMER: Morning.

    LAUER: I'm going to start with you, I'm not picking on you...

    CRAMER: No problem.

    LAUER: ...but yesterday the markets opened, they went down about 230 points.

    CRAMER: Right.

    LAUER: You were on our program live for the West Coast .

    CRAMER: Right.

    LAUER: You said you were actually encouraged by that because it seemed somewhat stable, nothing too dramatic.

    CRAMER: Right.

    LAUER: After that it went very south. What happened?

    CRAMER: Well, remember, we got to keep in perspective that panic is not a strategy here. We're only down 6 percent for the year for the Dow Jones , much better than everywhere else. And where we're coming from -- I know the point loss is big, but remember we lost 22 percent in one day when we were down 508 points in '87. The point decline wasn't nearly as stark as what the, you know, the percentage decline was not that bad.

    LAUER: Is this panic, Maria , or is this investors looking and seeing something fundamentally wrong with the US economy ?

    BARTIROMO: I think that's what it is, Matt. I think people are looking at an economy that has worsened. It is no longer a soft patch. The question is are we headed for a double dip? And they're saying 'I'm selling now and thinking later.' I agree with Jim . At some point we will find a bottom. They will feel like, 'OK, this is a buying opportunity.'

    LAUER: Are we close to it?

    BARTIROMO: I don't feel like it's out and out panic. And that's what you really want to see in order to expect capitulation.

    CRAMER: Right. And remember, it's overseas that's still the big problem. It's Europe. Obviously the debt ceiling issue and then coupled with the S&P is causing a lot of panic. But, Matt , again, I have to tell you, unless we have a severe recession it is going to be an opportunity to buy on the way down .

    LAUER: And I 'll talk about those opportunities in a second. I was shocked. I'll tell you, I was looking on Monday at what happened to Bank of America . That bank's stock...

    CRAMER: Right.

    LAUER: ...went down by about 20 percent. I know you want to be very careful about this, Jim .

    CRAMER: Yes.

    LAUER: What happened? Why did they take such a hit?

    CRAMER: Bank of America is at the crux of the mortgage crisis in this country. One out of five mortgages directly related to Bank of America . I think people feel that as long as housing's going down in value, Bank of America has to be hurt. A lot of people feel like it needs more capital. The company says it doesn't.

    LAUER: All right. Stay in the market, Maria ? I mean, Jim 's been saying this is not 2008 , there are opportunities here. Where are the opportunities in your opinion?

    BARTIROMO: Well, I agree that long-term this is probably at some point a buying opportunity, but things can get worse before they get better because it is based on real fundamental weakness for the economy . Bank of America a separate story because of this...

    CRAMER: Right.

    BARTIROMO: ...upset over the need for capital. But I think we're still in it and we've got some messiness to come.

    LAUER: A few seconds for each of you to end.

    CRAMER: Right.

    LAUER: I liked your interview yesterday with the president of Standard & Poor 's. They are obviously on the defensive. People pointing fingers at them for downgrading the US debt rating. The president's on them, the Treasury secretary, but now you're starting to hear a lot of people say, 'Wait a minute, they did the right thing.' New York 's Mayor Michael Bloomberg said that. Other people saying, 'We could thank them in the long term for what they've done.' How do you both feel about that?

    BARTIROMO: I think ultimately we should be thanking them because there are real issues.

    CRAMER: Right.

    BARTIROMO: Everybody understands we are spending more money than we are taking in. Something's got to give. If this acts as a wake-up call, more power to Standard Poor 's.

    CRAMER: Right. We deserved it. I was surprised the president didn't say, 'You know what, we're going to get back that AAA ,' instead of just saying we're a AAA nation. Real facts, real substance, real budget cuts, real revenue increases will meet their demands. I think everyone in the world thinks when is the United States going to step up and do the right thing ?


    LAUER: Bumpy day today here?

    CRAMER: Yeah.

    BARTIROMO: Yeah.

    LAUER: Yeah? More bumps in the road?

    BARTIROMO: Yeah, for sure. Volatility.

    LAUER: All right, Jim Cramer , Maria Bartiromo . And don't forget, you can check out the markets and follow what's going on all day long on CNBC . Thanks, guys, appreciate it. Let's go back to Studio 1A and Ann.

Photos: AAA Rating Reduced

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