The European Central Bank (ECB) did not buy any sovereign debt last week, prolonging a three-week streak that Mario Draghi's institution has halted its purchases of bonds issued by struggling peripheral countries. This lapse in bond buying contrasts to tensions in Spain. In March, bond yields and the risk premium in Spain returned to January highs.
This quiet in the middle of the storm suggests that Draghi is tightening the straps on countries that are under the most stress so that they undergo necessary reforms and not get used to the ECB, with its special measures, saving them every time trouble arises.
Draghi clearly stated his position in a press conference that followed the ECB's monetary policy meeting held on March 8: "Now I believe that the ball is in the courts of governments and other players, particularly the banks, all of whom need to go forward with their reforms. "Three-year debt granted by the ECB have created a situation in which these funds could be utilized, but certainly neither governments nor banks or other main players should be indulgent and take more than they need," Draghi said.
Without precedent
With this line of argument, Draghi pointed out that the historic loans supplied to the banks (520 billion euros in total) should not be re-routed to national authorities and their reform blueprints. That is to say, neither the funds nor the additional ECB aid -- such as their purchasing of sovereign bonds -- should serve as a pretext for European countries, especially those with the most exposure to the crisis, to postpone structural reform measures that they need to undertake in order to revitalize their economies and reinforce the solvency of their public accounts and financial sectors.
