BRUSSELS (MNI) – European Central Bank President Mario Draghi on
Thursday laid out the details of the ECB’s new plan to buy government
bonds in a bid to main financial stability in the Eurozone, and he said
it is now up to the governments of Spain and other countries to decide
whether they wish to avail themselves of it.

“We have decided now a ‘parcours’ a route,” Draghi said. “It’s in
the hands of the governments and the Eurogroup – in the government of
Spain and the euro area.”

When asked if the ECB would consider purchasing Spanish corporate
or bank debt, Draghi said that he would not “speculate on other
measures” at this stage.

Although Spain has agreed on an EU bailout of up to E100 billion
for its banking sector, Prime Minister Mariano Rajoy has hesitated to
request an EU aid program for the government itself, which is an
essential pre-condition for triggering ECB debt market intervention.
Rajoy had said he wanted to first wait and see the details of the ECB’s
plan.

Rajoy is due to meet German chancellor Angela Merkel in Madrid
later today. As MNI reported earlier Thursday, Spain will likely seek a
program from the bailout fund as long as the conditions attached do not
greatly exceed what the government has already committed to. In
particular, Rajoy is keen – for political reasons – to avoid the kind of
regular inspections by the ECB, European Commission and IMF that Greece,
Portugal and Ireland have been subjected to.

Draghi, speaking at his monthly press conference, said countries
did not necessarily have to seek a full-fledged macroeconomic bailout to
qualify for the ECB’s new bond buy plan, known as “Outright Monetary
Transactions” (OMT), but could also sign up for a kind of bailout-light
in which they would get a precautionary credit line. Bond buying by the
bailout funds – the EFSF and the ESM – would also be a condition of ECB
action.

At the ECB’s monthly press conference today, Draghi said the
central bank would buy sovereign debt with maturities of up to three
years of countries that meet the bank’s conditions. There would be no
quantitative limit on the purchases, he said.

This is a sharp contrast with the bank’s previous Securities Market
Programme, which ECB officials always stressed was limited in scope and
time. With the advent of the new OMT program, the SMP is terminated,
though the bank will hold the bonds it bought under that program to
maturity and continue to sterilize them.

The new OTM program would also extend to countries already under an
EU-IMF programme – namely Greece, Portugal and Ireland – when they are
ready to return to the international bond markets.

–Brussels Newsroom, pkoh@marketnews.com; +324-952-28374

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