MercoPress. South Atlantic News Agency

Draghi says ECB bond-buying program waiting for its first customer

But any bail-out request must agree to conditions, adds ECB president

The European Central Bank decided on Thursday to keep its main refinancing rate unchanged in a bid to calm markets but the focus really has been on when exactly its bond-buying program will get off the ground.

Meeting in the Slovenian capital, Ljubljana, the ECB Council said there would be no change right now to its historically low refinancing rate standing at 0.75%. This was in line with most analysts' expectations. They had argued that the ECB could cut its rates even further, but only after the start of its new bond-buying program aimed to bring down borrowing costs for debt-stricken Euro-zone nations.

Spain has been widely seen as the primary candidate to apply for such aid, but has so far resisted making the move.

Without any specific mention of Spain, ECB President Mario Draghi reiterated the bank's willingness to buy bonds of Euro area countries that would commit themselves to fiscal rehabilitation schemes.

“Outright monetary transactions will enable us to provide a fully effective backstop to avoid disruptive scenarios with potentially severe challenges for price stability in the Euro zone,” Draghi told reporters.

Draghi said nine times during the 54-minute press conference that the ECB won’t start intervening in bond markets until governments like Spain request a bailout and agree to conditions.

Spain might not be able to avoid a ceding control of its economic fate to European partners much longer. Already tapping 100 billion Euros in aid to overhaul its banks, Spain is under pressure to seek a broader European support package to shore up the government’s finances.

The government of the Euro area’s fourth-largest economy was told by the European Commission that its plan to cut the deficit to 4.5% of GDP next year is overly optimistic.

Draghi praised Spain for making “significant progress” in addressing its problems and said the conditionality involved in a rescue package doesn’t necessarily need to be harsh. “There is a tendency to identify conditionality with harsh conditions,” he said. “Conditions don’t need to be necessarily punitive.”

At the same time, Draghi warned Greece could not be granted more time to repay the share of its public debt held by the European Central Bank. He said accepting a longer repayment schedule for Greek government bonds in ECB hands “would qualify as monetary financing,” which was banned by European Union treaties.

ECB Chief predicted growth in the 17-member Euro area to remain rather weak in the near future. But the bank did not consider a rate cut to have a huge impact at the moment.

Despite the low refinancing yield, private households and companies had still been facing problems in securing loans, whereas inter-bank lending had improved tangibly.