It is to be welcomed that the ECB has tied the start of the new government bondbuying
program to strict conditionality. The ECB will only buy the government
bonds of a eurozone country once it has submitted to the terms of a full EFSF /
ESM adjustment program or precautionary program. The ECB also stated that it
will terminate purchases should the conditions not be met. Those are clear
words. The effectiveness of the program is also enhanced by the fact that ECB
purchases will not enjoy preferred creditor status.
Nonetheless the envisaged bond-buying program is not without its problems.
Exiting such unconventional measures is likely to prove more difficult than
thought. And although complete sterilization of the interventions is technically
feasible, given unlimited bank access to ECB liquidity it is not really effective.
The decisions announced by the ECB will probably reduce risk premiums
substantially, at least at the shorter end of the curve. But this does not mean
that the debt crisis has been overcome. Responsibility for that still lies with the
national governments and political co-operation within the European Union.