Thursday

28th Mar 2024

Draghi puts the ball in Spain's court on ECB bond-buying

The European Central Bank is ready to deploy its new bond-buying scheme if Spain requests it and signs up to "conditionality," which would not be any harsher than what the country is already doing, European Central Bank (ECB) chief Mario Draghi said on Thursday (4 October).

"We are ready to undertake Outright Monetary Transactions, once all the prerequisites are in place," he said at a press conference after the monthly meeting of the bank's governing council, which took place in the capital of Slovenia, Ljubljana.

Read and decide

Join EUobserver today

Get the EU news that really matters

Instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

The so-called "OMT" programme was first hinted at in August and would provide an unlimited backstop to countries like Spain struggling with too high borrowing costs but which are not under a full bailout.

For the bond-buying to take place, however, the Spanish government has first to ask for the financial assistance and to sign a memorandum of understanding with eurozone finance ministers, outlining deadlines for ongoing fiscal and labour market reforms.

Madrid has so far hesitated in asking for the bond-buying for fear markets would interpret it as a full-blown bailout.

But Draghi made it clear that the strings attached do not have to be harsher than the austerity measures already underway in Spain.

"There is a tendency to identify conditionality with harsh conditionality. But conditionality does not need to be punitive. There can be great social benefits to it," he said.

Conditionality is essential for the ECB to preserve its independence from politics, as enshrined in its founding treaty. In case a government fails to deliver on the reforms it signed up to, the bank would halt the bond-buying scheme, Draghi explained.

Making the actual request for the first OMT is now "up to the Spanish government and the other euro area governments to decide," he added.

He also clarified that Portugal would not qualify for this scheme because it has not yet gained "full market access," even though he praised the bailed-out country for its reforms and for managing to sell a five-year bond on Wednesday, the first time since June 2011.

On Greece, Draghi ruled out any ECB involvement in a possible further debt restructuring. "We have said several times that any restructuring of our holdings would qualify as monetary financing," he said.

The ECB governing council also decided to keep the key interest rate at 0.75 percent, unchanged in three months. Unaware his microphone was still on, Draghi noted: "This was a dull press conference."

"With the OMT, the ECB has tackled and exorcised fears of an imminent eurozone break-up. For the time being, the ECB can lean back, watch and twiddle thumbs," ING economist Carsten Brzeski commented after the event.

Spain in wait-and-see mode as recession worsens

Spanish Prime Minister Mariano Rajoy on Tuesday said his government has not yet taken a decision on asking for European help in refinancing its debt, pending a key meeting of the European Central Bank next week.

Analysis

Spain's bailout dilemma: not if, but when and how

Markets rallied on Tuesday when two German lawmakers suggested Berlin is warming to the idea of a Spanish bailout. But the wait-and-see game in Madrid is likely to take a few weeks longer.

'Swiftly dial back' interest rates, ECB told

Italian central banker Piero Cipollone in his first monetary policy speech since joining the ECB's board in November, said that the bank should be ready to "swiftly dial back our restrictive monetary policy stance."

Opinion

EU Modernisation Fund: an open door for fossil gas in Romania

Among the largest sources of financing for energy transition of central and eastern European countries, the €60bn Modernisation Fund remains far from the public eye. And perhaps that's one reason it is often used for financing fossil gas projects.

Latest News

  1. German bank freezes account of Jewish peace group
  2. EU Modernisation Fund: an open door for fossil gas in Romania
  3. 'Swiftly dial back' interest rates, ECB told
  4. Moscow's terror attack, security and Gaza
  5. Why UK-EU defence and security deal may be difficult
  6. EU unveils plan to create a European cross-border degree
  7. How migrants risk becoming drug addicts along Balkan route
  8. 2024: A Space Odyssey — why the galaxy needs regulating

Stakeholders' Highlights

  1. Nordic Council of MinistersJoin the Nordic Food Systems Takeover at COP28
  2. Nordic Council of MinistersHow women and men are affected differently by climate policy
  3. Nordic Council of MinistersArtist Jessie Kleemann at Nordic pavilion during UN climate summit COP28
  4. Nordic Council of MinistersCOP28: Gathering Nordic and global experts to put food and health on the agenda
  5. Friedrich Naumann FoundationPoems of Liberty – Call for Submission “Human Rights in Inhume War”: 250€ honorary fee for selected poems
  6. World BankWorld Bank report: How to create a future where the rewards of technology benefit all levels of society?

Join EUobserver

EU news that matters

Join us