ECB rides to the rescue
European Central Bank president Mario Draghi said yesterday that everything was in place for the bank to buy the bonds of troubled eurozone countries such as Spain and that the conditions linked to the purchases need not be punitive.
At the first ECB meeting since Draghi unveiled his controversial bond-purchase plan a month ago, the markets were looking for signs of when Spain might make a formal aid request and trigger the programme that some have hailed as a saviour for the battered eurozone.
Draghi offered no clues in that regard but did say that Spain had made "significant progress" in dealing with its fiscal problems, and that the bond plan had calmed the financial markets, even though it had not yet been used. He refused to comment on whether Spanish bond yields were at appropriate levels.
At an auction yesterday Spanish borrowing costs fell.
"I could say that, today, we are ready with our outright monetary transactions," Draghi said. "We have a fully effective backstop mechanism in place once all the prerequisites are in place."
The euro rose against the dollar and Wall Street stocks opened higher, buoyed by Draghi's positive assessment of the bond-buying plan's effect on market sentiment.
But the market boost that followed Draghi's late-July promise to do "whatever it takes" to combat the three-year-old eurozone crisis has already begun to fade, amid concerns that Spain is too reluctant to make a formal bailout request.
Spanish two-year note yields have climbed more than half a percentage point in the past month - a reminder that action, not words, is needed to resolve the eurozone crisis.
Beset by anti-austerity protests and threats of secession by the wealthy northwestern region of Catalonia, Spanish Prime Minister Mariano Rajoy has refused to ask for a bailout, in part because Germany opposed one, sources said.
He is also worried about the perception that Spain's policies are being dictated from abroad, though analysts said the ECB was unlikely to attach stricter conditions to its bond-buying scheme than those set by the EU and the IMF.
"There is [an erroneous] tendency to identify conditionality with harsh conditions," Draghi said.