With the court set to rule on Sept. 12, investors looking for Draghi to announce a definitive purchase program at his Sept. 6 press conference might be disappointed, according to the officials, who spoke on condition of anonymity because the deliberations are not public. The program is still being worked on and staff may not be able to finalize it by then, said the officials, who are familiar with thinking on the ECB Governing Council. An ECB spokesman in Frankfurt declined to comment.
Draghi announced on Aug. 2 that the ECB may intervene in the secondary market to reduce bond yields in countries such as Spain and Italy if they apply to Europe’s bailout fund for aid and accept the conditions attached. The European Stability Mechanism, intended to replace the temporary European Financial Stability Facility, hasn’t entered into force yet as legal wrangling over its compatibility with the German constitution continues.
While Draghi is likely to give a progress report on the bond plan after the Sept. 6 rate decision, the ultimate design of the ECB’s program may depend on the uncertainty over the permanent bailout fund being resolved, so the officials said it makes sense to wait for the German ESM court ruling.
Full details of the ECB’s plan could be a month away, they said. While the Bundesbank opposes ECB bond purchases, it expects to be outvoted, one of the officials said.
The ECB took the unusual step of responding to that article, saying in a statement that the Governing Council hadn’t discussed the plan and it was “absolutely misleading to report on decisions which have not yet been taken.”
Germany’s Constitutional Court is deciding whether to suspend the 500 billion-euro ($627 billion) ESM following lawsuits by German lawmakers, academics and political groups who say the fund contravenes domestic law. If the start of the ESM is delayed further, crisis managers would have to get by with the 240 billion euros left in the temporary EFSF.
German Finance Minister Wolfgang Schaeuble warned on July 10 that a delay in activating the ESM could lead to a “significant worsening of the debt crisis.”
Draghi’s bond-buying plan hinges on the government-backed bailout funds acting first, which would require countries to make a formal request for aid and to sign up to conditions in a Memorandum of Understanding. Neither Spain nor Italy has made such a request.
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