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Wednesday, September 12, 2012 1:04 PM

Spain's Prime Minister Considers ECB Bond Program While Denying Full Sovereign Bailout; Debt Restructuring Under OMT Not On Table Says ECB; Reflections on "Strict Conditions"

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The Economic Times reports Spain's Prime Minister Mariano Rajoy considers ECB bond programme

HELSINKI: Spain is considering asking help from the European Central Bank's bond-buying programme but is not planning a full sovereign bailout, Prime Minister Mariano Rajoy was quoted as saying on Wednesday in Finnish newspapers.

Last week the ECB agreed to launch a new bond-buying programme to lower struggling euro zone countries' borrowing costs.
"In addition to growth, the only option I am considering is using the central bank's announced mechanism," Rajoy said, according to Helsingin Sanomat.

"It is completely outruled that we would ask for a bailout for the whole country," he told business daily Kauppalehti.
Mish Translation

Spain wants and needs a full sovereign bailout, but Rajoy does not want to go along with the demands stipulated by Mario Draghi in the OMT program.

Recall that one of the conditions of the OMT involves oversight by the IMF.

Debt Restructuring Under OMT Not On Table Says ECB

The Wall Street Journal reports Talk of Debt Restructuring Under New Program 'Not on Table'
The European Central Bank won't discuss potential write-downs on debt bought under its new bond-buying program, ECB executive board member Joerg Asmussen said Tuesday.

Asked whether the ECB would participate in any voluntary restructuring of bonds bought under the program, known as Outright Monetary Transactions, Mr. Asmussen said the question "is not on the table."

ECB President Mario Draghi announced last week that the ECB is ready to buy a potentially unlimited amount of the bonds of stressed euro-zone governments, under strict conditions.

The OMT "has been designed to ensure full compatibility with European law, and in particular with the prohibition of monetary financing," Mr. Asmussen said.

He stressed that "strict conditionality is key," and warned that the program is no substitute for structural reforms and budget consolidation by governments.

The involvement of the International Monetary Fund is a necessary condition for the ECB to activate the new program, he added.
Strict Conditions For Bond Buying?

When Spain's budget deficit fails to come close to agreed upon targets (which by the way is right now) we will see just how "strict" those conditions are.

I strongly suggest even "loose" conditions will quickly fly out the window.

Mike "Mish" Shedlock
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