Writing for the WSJ, Barley says that as long as confidence in the ECB's programme holds, then backstop plans may remain a powerful, but entirely theoretical, deterrent.
When the sovereign debt market backstop was introduced in September, it was widely assumed that it would be a matter of weeks before Spain asked for aid. Six months on, not a cent has been spent... To add to the puzzle, many investors have doubts about how well the programme will work in practice, should it ever be activated. The ECB's previous bond-buying facility, the Securities Markets Programme, defused market tensions at critical moments but failed to lower bond yields in a sustainable way, particularly after the ECB refused to take losses on its Greek bonds. And ECB President Mario Draghi says that signing up for an International Monetary Fund and eurozone support package is a necessary, but not sufficient, condition for ECB assistance: There's no automatic guarantee of bond buying...
The reality is that no one wants to bet against the ECB for fear of steep losses, which is just how the ECB likes it. The central bank would be happy if the programme was never activated. Some still think that's wishful thinking. UBS expects Spain to ask for eurozone support in the second half of the year. But simply by imbuing the markets with confidence that the euro wouldn't break up, the ECB's programme already may have worked its magic.
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