Constancio Expects Spain to Trigger OMT With Aid Request

ECB Vice President Vitor Constancio
ECB Vice President Vitor Constancio added that “it is up to the countries in the end of course” to decide on an aid request. Photographer: Kiyoshi Ota/Bloomberg

The European Central Bank expects Spain to request aid from Europe’s bailout fund, triggering ECB bond purchases, Vice President Vitor Constancio said.

“Of course we expect that something will happen and that we will have to activate” Outright Monetary Transactions “after a country makes a request,” Constancio told reporters in Berlin today after being asked whether he thinks Spain will seek aid. “So that’s still our expectation and we are operationally ready for that.” It’s “up to the countries” to decide, he added.

ECB President Mario Draghi unveiled details of the plan to buy unlimited government bonds after Spanish and Italian borrowing costs surged and both countries put pressure on the central bank to intervene. To qualify for the OMT, a country needs to seek aid from Europe’ rescue fund and sign up to conditions, something Spain is resisting.

Asked whether the ECB is right to expect a Spanish request for aid, Spain’s Economy Minister Luis de Guindos told reporters in Brussels today that “Spain’s position on this issue hasn’t changed at all.”

Constancio also said he expects euro-area governments to “reach an agreement to address the Greek situation and to be able to agree on the next disbursement which is at stake.”

Euro-area finance ministers will today try for a third time this month to clear an aid payment to Greece and come up with a blueprint to keep the country a solvent member of the currency bloc.

ECB Measures

Constancio reiterated that the ECB opposes asking public-sector holders of Greek debt to take a loss. “The official position of everyone involved is there will not be haircuts,” he said, adding this is also the ECB’s position.

The ECB has been at the forefront of fighting the sovereign debt crisis, which has seen five countries seek bailouts and pushed the 17-nation euro area into recession.

The central bank has cut its benchmark rate to a record low of 0.75 percent and launched a range of so-called unconventional measures, including giving banks as much liquidity as they need in exchange of collateral and loosening its collateral framework. The ECB has always stressed that the unconventional measures are temporary.

“For us to contemplate exit from the unconventional measures, which we will do some time in the future of course, depends on several aspects” including economic conditions, inflation risks and the pace of financial integration in the euro area, Constancio said.

The ECB currently sees no “significant risks to inflation,” he said.


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