ECB agrees new bond-buying programme: Draghi

[dipsydoodle]

Source: Reuters

(Reuters) - The European Central Bank agreed a new bond-buying programme on Thursday to lower struggling euro zone countries' borrowing costs which would serve as a "fully effective backstop", ECB President Mario Draghi said on Thursday.

The ECB Governing Council agreed on the "modalities of outright monetary transactions", Draghi told a news conference after the Council's monthly policymaking meeting in Frankfurt.

Seeking to back up his pledge to do whatever it takes to preserve the euro, Draghi said the new bond-buying programme, aimed at the secondary market, would "safeguard the monetary policy transmission in all countries in the euro zone area".


Read more: http://uk.reuters.com/article/2012/09/06/uk-ecb-eurozone-bondplan-idUKBRE8850LV20120906

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Here are the key points:

1) Conditionality:

"Strict and effective conditionality is an essential part" of the plan, he says. Either a full-blown economic reform plan, or an "Enhanced conditions credit line - ECCL".

What does this mean? Basically, that any country who asks the ECB to help ease its borrowing costs must agree to an economic reform programme in return. Not necessarily as regimented as the bailout plans enforced by the Troika - it sounds like ECCL will be bailout-lite.

The ECB governing council will decide

2) Coverage: the ECB would buy bonds of between 1 and 3 years of maturity.

3) Seniority -- the ECB will be treated alongside other bond holders, rather than being the most senior creditor. This is called "Pari passu"

http://www.guardian.co.uk/business/2012/sep/06/eurozone-crisis-mario-draghi-ecb-euro?newsfeed=true

[Roland99]

1. Buying 3yr bonds (or 10yr bonds w/3yrs left on them) is legal under treaties, eh?

So, short-term financing of governments is ok because it's not really financing of governments.

nice.

[dipsydoodle]

2. I gathered these were new bonds.

There's a note somewhere on the subject that they have to be held to maturity. As such they may also not be traded during their term. If so that would stem speculative use.

[dixiegrrrrl]

3. Adding debt to solve a problem created by debt..

yeah, that will work.