The ECB may will reactivate the SMP - Securities Markets Program - which allows it to buy government bonds. But that "may", was repeated several times by Dragui, in the press conference, today. The possibility
depends on the "necessary but not sufficient" condition that states do request support from the bailout funds EFSF/ESM, which imply strict conditionality. Rajoy, in a press conference with Monti, this afternoon, declined to answer on the possibility of using the bailout funds.
Dragui refered that the purchase of bonds may, or may not, be sterilized. For these operations are not sterilized, the ECB would be to create money to buy debt of states. If not sterilized, the operations would be a form of quantitative easing. Dragui did also ruled out the possibility of the ESM access ECB funds (through a banking license), because in its current configuration, the ESM isn't a "suitable counterparty".
| Mario Draghi, President of the ECB: |
| "The Governing Council extensively discussed the policy options to address the severe malfunctioning in the price formation process in the bond markets of euro area countries. Exceptionally high risk premia are observed in government bond prices in several countries (...). In order to create the fundamental conditions for such risk premia to disappear, policy-makers in the euro area need to push ahead with fiscal consolidation, structural reform and European institution-building with great determination. (...) governments must stand ready to activate the EFSF/ESM in the bond market when exceptional financial market circumstances and risks to financial stability exist - with strict and effective conditionality (...). The adherence of governments to their commitments and the fulfilment by the EFSF/ESM of their role are necessary conditions. The Governing Council, within its mandate to maintain price stability over the medium term and in observance of its independence in determining monetary policy, may undertake outright open market operations of a size adequate to reach its objective." |