The ECB will buy debt to Spain under “strict conditions” and only if it requests the rescue

The ECB will buy debt to Spain under “strict conditions” and only if it requests the rescue

  • Draghi has informed in a press conference of the deliberations of the government council and has offered some details of the new debt purchase program.
  • The intervention will be subject to “strict conditions”, supervised by the IMF, and must be preceded by a request for aid to the EU rescue fund.
  • The ECB has decided to keep the interest rates of the euro at the minimum of 0.75%.
  • Rajoy does not confirm if Spain will ask for the ransom until he sees the proposal “in detail”.
 

The president of the European Central Bank (ECB), Mario Draghi, has confirmed on Thursday that he will buy sovereign debt from countries in crisis in the eurozone with the aim of guaranteeing the “irreversibility” of the euro. The intervention will be subject to “strict conditions”, supervised by the International Monetary Fund (IMF), and must be preceded by a request for aid to the EU rescue fund by the beneficiary governments.

The Italian banker explained that this program, called OMT, will allow the entity to deal with “severe distortions” in the bond markets, as well as guarantee the “irreversibility of the euro”.

The intervention of the rescue mechanisms is a necessary condition “We adhere strictly to our mandate,” argued Draghi, who pointed out that governments must be ready to activate rescue mechanisms when there are risks or exceptional situations, “under strict conditionality.” Also, the Italian banker noted “the adherence of governments to their commitments and the intervention of rescue mechanisms are necessary conditions.”

 

Draghi has also specified that the new program of purchase of sovereign bonds that the institution will carry out will concentrate on debt with maturities between one and three years, adding that amounts will be dedicated “without limit” and that these purchases will be later “completely sterilized”. “

Also, the Italian banker indicated that the figures of this program will be informed weekly , in addition to confirming that the BCE will renounce its privilege of collection with respect to the rest of private creditors. In this way, the president of the ECB reported that the entity has decided to terminate the previous program of sovereign bond purchase (SMP).

“As for Spain, we have marked a route, it is up to the governments , the Government of Spain and the governments of the eurozone” to decide whether to activate the debt purchase, Draghi said at a press conference when asked about if the new program will be ready in October, when the Government of Mariano Rajoy must face important debt maturities.

“The vote has not been unanimous”

The Italian politician explained at that press conference after the Governing Council of the monetary entity that the “vote has not been unanimous” and that there has been “a dissenting opinion”, although it has not revealed which member is involved. The German Bundesbank has been openly against a program of purchase of sovereign bonds by the ECB.

Draghi stressed that the monetary entity conditions the purchase of sovereign debt to the programs of complete macroeconomic adjustment or a preventive – that is less hard – of temporary and permanent rescue funds and that the collaboration of the International Monetary Fund will be sought at the time of the supervision.

The German Bundesbank has been against the program of purchase of sovereign bonds The Italian emphasized that a necessary condition so that the BCE acts in the market of secondary debt is that the governments accept the “strict and effective conditions” that are united to a program of European rescue funds, be it the European Stability Fund (EFSF) or the future European Stability Mechanism (ESM), mechanisms that would intervene in the primary market.

The program could also be applied to countries that are currently under a rescue plan (Greece, Ireland and Portugal) when they regain access to the bond markets , he explained.

The ECB will assess the extent to which an intervention is warranted and will be able to decide with “full discretion” the start of the bond purchase program, its continuation and even its suspension if the beneficiary country does not meet the conditions.

In addition, the agency will relinquish its status as a preferred creditor and accept “the same treatment as private creditors” in case of restructuring of the new debt acquired. The liquidity injected into the system with these purchases will be “fully” withdrawn through other operations, Draghi explained.

Maintains interest rates at 0.75%

In addition, the European Central Bank (ECB) has decided on Thursday to maintain stable euro interest rates at the historical low of 0.75% , the institution announced.

In this way, the issuing institute of the eurozone is reluctant to further relax its monetary policy to stimulate the recovery of economic activity, after the year-on-year rate of inflation in the euro zone experienced a rise of two tenths in August compared to the month previous to reach 2.6%.

The GDP of the euro zone registered a contraction of two tenths in the second quarter of 2012 However, the consulted consensus of analysts is confident that the president of the ECB, Mario Draghi, will provide more details during the press conference that will begin the 2.30 pm on the institution’s plans to intervene in the sovereign debt markets .

The gross domestic product ( GDP ) of the euro zone registered a contraction of two tenths in the second quarter of 2012 compared to the first three months of the year, when it had stagnated, leaving the euro bloc on the verge of recession, in the which are already five countries of the eurozone (Spain, Greece, Italy, Cyprus and Portugal).