Monday

16th Sep 2019

ECB to buy Spanish bonds, but with strings attached

  • Spanish bonds are expected to sell well in the coming months (Photo: Valentina Pop)

The European Central Bank on Thursday (6 September) announced an "unlimited" bond-buying programme once governments apply for eurozone financial assistance with strict conditions and supervision.

"The Governing Council today decided on the modalities for undertaking Outright Monetary Transactions (OMTs) in secondary markets for sovereign bonds in the euro area," ECB chief Mario Draghi said in a press conference after chairing the council of eurozone's central bank governors.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

The new programme will allow the ECB to buy government bonds with a maturity of 1-3 years from countries phasing out of a bailout or for countries who are entering a new bailout programme, be it full-blown of 'precautionary'.

"Unlimited" - a key word - meets expectations raised by Draghi earlier this summer when he promised the ECB would do "whatever it takes" to save the euro.

He explained that the eurozone continues to be very "fragmented" and that in some countries the reforms done are not enough to convince markets, which are still spooked by the prospect of a possible breakup of the eurozone.

Such fears, he insisted, were completely false. "The euro is irreversible," he said.

During the vote in the council of bank governors, only Germany's Jens Weidmann opposed the plan, in line with his previous statements.

"Monetary policy is at risk of becoming the tow-rope of fiscal policy. Its capacity to ensure a stable currency in the eurozone should not be jeopardised with such interventions," Weidmann said in an emailed statement.

But his stance is unlikely to hamper the new scheme, particularly since one of the core German principles is kept: no money without strings attached.

"We had the previous experience, it had just one leg and it didn't work," Draghi said, in reference to the mistake made last year when it relied on a gentleman's agreement with then Italian Prime Minister Silvio Berlusconi to make reforms in return for bond purchases, only to be left in the cold once Rome's borrowing costs went down.

Draghi warned governments that may apply for such aid that the ECB will suspend the bond purchases if the conditions enshrined in a memorandum of understanding with the eurozone bailout fund are not kept.

The same wording came also from German Chancellor Angela Merkel on Thursday, who met Spanish Prime Minister Mariano Rajoy in Madrid just as the ECB was convening: "Monetary intervention cannot replace political action," she warned.

Signalling that Berlin is fully behind the new scheme, Merkel said that OMT was "in line with the ECB mandate" of ensuring a stable euro, while keeping its full independence from politics.

She denied having talked about any new bailout requests with Rajoy, but said she was "very impressed" with the reforms his government was pursuing.

Rajoy also denied having held any discussions about a possible aid request. "When there is news I will tell you," he told reporters.

European officials both in Brussels and Frankfurt meanwhile have told this website that patience is wearing thin with Spain and that they "should wake up to the reality that there is no way around having to ask for a bailout."

Madrid already waited as long as possible to request a €100bn bailout for its banks, which was finally agreed in June.

It can still avoid the full-blown bailout Greece, Portugal and Ireland had to ask for, as under current rules, the temporary bailout fund EFSF can buy Spanish bonds if Madrid signs up to increased supervision of reforms they are already doing or promised to do under EU's strengthened budget rules.

Opinion

The monetary masquerade

Massive monetary expansion defers vital structural reforms in the advanced world, writes Dan Steinbock.

Hungary tops EU anti-fraud investigation list

In its annual report, the EU's anti-fraud agency said it concluded nine investigations into Hungary and found irregularities in seven cases. In total, the agency recommended the recovery of €371m EU-wide.

News in Brief

  1. Nearly 100 refugees evacuated from Libya to Italy
  2. Juncker to meet Johnson on Monday
  3. First Hungary 'Article 7' hearing set for Monday
  4. Vestager picks Danish EU ambassador as cabinet head
  5. Commissioner hearings will start 30 September
  6. Italy says EU countries agree to take in rescued migrants
  7. Germany to organise Libya conference on arms embargo
  8. European Parliament to support another Brexit delay

Opinion

Why von der Leyen must put rights at core of business

Ursula von der Leyen's in-tray must include those European executives on trial for systematic workplace harassment, the break-up of European slavery rings, and allegations of European companies' abuse in palm oil, including child labour, land grabs, and deforestation.

Stakeholders' Highlights

  1. Nordic Council of MinistersNew programme studies infectious diseases and antibiotic resistance
  2. UNESDAUNESDA reduces added sugars 11.9% between 2015-2017
  3. International Partnership for Human RightsEU-Uzbekistan Human Rights Dialogue: EU to raise key fundamental rights issues
  4. Nordic Council of MinistersNo evidence that social media are harmful to young people
  5. Nordic Council of MinistersCanada to host the joint Nordic cultural initiative 2021
  6. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  7. Nordic Council of MinistersEducation gets refugees into work
  8. Counter BalanceSign the petition to help reform the EU’s Bank
  9. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  10. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  11. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  12. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat

Latest News

  1. Brexit and new commission in focus This WEEK
  2. As recession looms Europe needs more spending
  3. How should the EU handle Russia now?
  4. EU defence bravado criticised by auditors
  5. Central European leaders demand EU Balkan accession
  6. Luxembourg's cannabis legalisation is EU opportunity
  7. The Catalan National Day has been a success. Why?
  8. Why I'm voting against the von der Leyen commission

Stakeholders' Highlights

  1. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North
  2. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  3. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  4. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  5. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year
  6. Nordic Council of MinistersNordic commitment to driving global gender equality
  7. International Partnership for Human RightsMeet your defender: Rasul Jafarov leading human rights defender from Azerbaijan
  8. UNICEFUNICEF Hosts MEPs in Jordan Ahead of Brussels Conference on the Future of Syria
  9. Nordic Council of MinistersNordic talks on parental leave at the UN
  10. International Partnership for Human RightsTrial of Chechen prisoner of conscience and human rights activist Oyub Titiev continues.
  11. Nordic Council of MinistersNordic food policy inspires India to be a sustainable superpower
  12. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID

Join EUobserver

Support quality EU news

Join us