One of the problems with the ECB bond-buying plan, which was hailed last week as a way to help curb the borrowing costs of financially troubled nations, is that it may have no takers. Italian Prime Minister Mario Monti told CNBC that his country has no intention of drawing from the facility. Spain also may avoid borrowing for as long as possible.
There are two reasons for the reluctance. The first is that borrowing would signal that a nation has moved to the brink of real trouble. It is hard to argue that Spain is not there already, but that does not mean it wants to admit its severe problems. The other reason is that any borrowing has to be coupled with budget reforms approved by EU authorities. Spain and Italy want to avoid this kind of stranglehold if possible.
Everyone is of course looking at Spain and Italy, but they seem in no hurry to raise their hands. Today, GMP Securities’ Adrian Miller asks “whether the plan will ever get off the shelf of the ECB as Spain and Italy have both indicated they are in no hurry to make an official request for aid. Indeed, while Italy’s Mario Monti announced the ECB bond buying plan reduced the stigma of asking for aid as “the drama in the word ‘help’ has been reduced”, he said he was trying to avoid seeking aid. Monti indicated it was premature to comment on the details of the OMT plan.”