ECB ready to aid states in trouble, says Draghi

EUROPEAN CENTRAL Bank chief Mario Draghi declared the bank’s readiness to buy up sovereign bonds if Spain or any country seeks such aid. He also ruled out any easing of repayments on the bank’s holdings of Greek bonds.

As the ECB held its main interest rate steady at a record low of 0.75 per cent, Mr Draghi reported a “substantial, significant improvement” in credit market conditions since the ECB announced its new bond-buying scheme last month.

Known officially as the outright monetary transactions (OMT) initiative, the scheme cannot be triggered without a formal application for assistance by the member state.

Although Mr Draghi revealed nothing about the timing of any approach from Spain, he saw “good news” in the fact that the country has already raised 90 per cent of this year’s funding requirement.

He would not say whether Spanish bond yields were at appropriate levels and said it was for the Spanish government and all governments to decide what they wanted to do.

“I could say that today we are ready with our OMT.

“We have a fully effective backstop mechanism in place,” Mr Draghi said.

“The decision is entirely in the hands of governments. “The ECB has done what was possible and the OMT would create an environment which is conducive to reforms . . . but the initiative is in the hands of governments.”

Amid concern in Madrid that any extension of the European aid plan for its bank would draw unpopular harsh conditions, Mr Draghi said the plan did not need to be “necessarily punitive”.

“Actually many of the conditions have to do with structural reforms, which have both social cost but also great social benefits.”

At the same time, he dismissed the notion that the ECB could reschedule the repayments on its Greek bonds to reduce the burden on Athens as it negotiates a difficult financial plan with the EU-ECB-International Monetary Fund “troika”.

Such a move would be illegal in EU law, he suggested.

“We’ve said several times that any voluntary restructuring of our holdings would be equivalent – would be monetary financing.”

The ECB chief said it was for euro zone governments to deal with the declaration by Germany, Finland and the Netherlands that the new European Stability Mechanism should not bear historic bank losses.

The manoeuvre last week threw doubt over the potential scope of any deal in which the ESM would take shares in AIB, Bank of Ireland and Permanent TSB.

“We’ll have to assess exactly what it means and I don’t want to prejudge the technical discussion that will take place,” Mr Draghi said.