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News Analysis: Spain in curious position as ECB disappoints

(Xinhua)

09:28, August 03, 2012

BRUSSELS, Aug. 2 (Xinhua) -- After pledging to do "whatever it takes" to save the euro last week, Mario Draghi's failure on Thursday to announce immediate measures to bring down rising borrowing costs of peripheral eurozone nations has disappointed many and put Spain in a curious position.

The European Central Bank (ECB) chief had promised in late July in London that he would do everything to save the common currency shared by 17 nations, raising hopes the ECB would intervene directly on government bond markets.

He reiterated Thursday the ECB was ready to act -- only not now. Any new ECB action was conditional on eurozone governments using the existing bailout funds first, Draghi said.

But where does this leave Spain, which has just secured a 100-billion-euro (about 123 billion U.S. dollars) credit line for its banking sector?

ECB ACTION WITH STRINGS ATTACHED

Draghi announced the ECB can make outright purchases in open market operations "of a size adequate to reach its objectives." He added he would detail "over the coming weeks" ECB plans to help struggling economies, repeatedly indicating that monetary policy without government action "was not enough."

"The adherence of governments to their commitments and the fulfilment by the EFSF/ESM of their role are necessary conditions," he said.

This means if Spain was looking for an ECB intervention, it would have to formally apply to the eurozone's bailout funds and agree to attached conditions -- including possible austerity and structural reform -- before receiving help.

"What we can take away from today is that the ECB will act, but not on its own," Stephanie Hare, senior Western Europe analyst at Oxford Analytica, told Xinhua.

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