ECB keeps bond program on ice, pressure on governments
FRANKFURT (Reuters) - The European Central Bank bought no government bonds for the 13th week running last week, ECB data showed on Monday as the bank judges the controversial program of diminishing benefit in the face of the deepening euro zone debt crisis.
The ECB has bought hardly any bonds from euro zone countries since Mario Draghi took over as president in November as policymakers have become increasingly wary of the risks piling up on the balance sheet and the lack of incentives for reforms.
The program's effectiveness has also been put into question after the ECB took immunity status in the Greek debt restructuring while private bondholders booked losses - a scenario investors are worried could be repeated elsewhere.
"There is the risk that any purchases by the ECB would be counterproductive," said Michael Leister euro zone rates strategist at DZ Bank, pointing to a less than 40-percent probability that Spain may follow in Greece's footsteps.
"It is not unlikely that we will see a restructuring of Spain's debt in the next year or two," he said. "The more the ECB buys, the more private investors will try to get out of Spanish bonds to avoid a similar situation as in Greece."
Spain became the fourth euro zone country to seek international aid in the three-year-old debt crisis on Saturday as euro zone finance ministers agreed to lend Spain up to 100 billion euros to shore up its teetering banks.
The ECB has taken a new hardball approach and kept interest rates unchanged last week despite a deteriorating economic outlook, saying monetary policy could not solve some of the euro zone problems, telling governments instead they had to act.
A lack of new ECB purchases last week means the bank has only used the program once since mid-February. It has spent 212.0 billion euros on bonds since launching the program in May 2010. (For data on bond buys)
No bonds previously bought under the program matured last week. As usual the bank will hold its weekly 'sterilization' tender - where it takes deposits from banks to offset its controversial bond purchases - on Tuesday.
The ECB has stressed that it has not closed the Securities Markets Programme officially, but rather said it remains in place and can be reactivated if needed.
But the program's critics at the ECB have gained traction in recent weeks as the risks have become more visible, especially with a potential Greek exit from the currency union.
Two of the bank's German policymakers quit last year over the purchases, which critics say treads dangerously close to the ultimate ECB taboo of financing governments.
The ECB also fears that its interventions give countries less of an incentive to implement the necessary and sometimes painful reforms.
(Reporting by Eva Kuehnen)
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