FRANKFURT/AMSTERDAM One of the biggest questions facing financial markets is the will-they or won't-they hovering over the European Central Bank's bond-buy program.
The bank has pledged to stop any speculative sell-offs of troubled euro zone bonds that threaten to break up the bloc, saying it will buy them itself if necessary. But it has never done so, leaving open the question of when or whether it ever will.
Now, though, evidence is building that ECB policymakers have come to believe their plan should at least be on stand-by for deployment, rather than kept in reserve like a nuclear deterrent.
Known as Outright Monetary Transactions, or OMT, the plan allows the ECB to step in if needed and buy bonds of euro zone countries that have ask for a bailout and accepted the austerity and reform conditions that go with it.
It has stabilized the market without actually being used.
Last year, the ECB was reported to be ready for aggressive intervention for a period of one to two months once the program was launched.
But when Spain held off applying for the prerequisite aid plan, the bank shifted this stance and put the onus on governments to fight the crisis.
Talk now among key policymakers about the plan, however, suggests a new readiness to intervene if the crisis flares again and puts government borrowing costs at unsustainable levels.
Any intervention would depend on the country concerned complying with the debt-cutting conditions for ECB action - a caveat that could leave Italy unprotected by the shield after voters there rejected austerity in a February 24-25 election.
But the plan should at least stem any contagion elsewhere.
Klaas Knot, the Dutch central bank chief who is widely seen as one of the more hawkish ECB policymakers, showed a readiness to use the plan when pressed by Reuters on Thursday.
"I don't want to speculate on any specific case. But it is clear that if certain circumstances are fulfilled, then the ECB should be ready for activation," he told a news conference.
The Dutchman's comments came after two other ECB policymakers - Benoit Coeure, who would supervise day-to-day running of the plan, and Cyprus central bank chief Panicos Demetriades - suggested to Reuters an openness to intervening in small countries such as Ireland rather than keeping it in reserve for larger Spain.
Their stance, however, is not shared by all.
Belgium's Luc Coene said in January the bond-buying plan was "like a nuclear deterrent" and that the ideal situation would be for it "never to be used".
In Germany, Bundesbank chief Jens Weidmann, the sole ECB policymaker to oppose the OMT plan from the outset, remains steadfastly against it. He sees ECB purchases of sovereign bonds as risky and blurring the borders between monetary policy and fiscal policy.
Weidmann's view resonates among German hardliners. Juergen Stark, a former ECB policymaker who quit last year in protest at the bank's previous bond-buy plan, quips that OMT stands for "out of mandate transactions".
But the comments from Coeure, Demetriades and Knot - a good cross-section of the 23-man Governing Council aside from Weidmann - suggest the German remains isolated in his opposition to the plan and that the ECB is ready to activate it, if needed.
Weidmann failed to win over Knot or other hawks such as Yves Mersch when resisting the formulation of the plan.
None of the ECB policymakers from the euro zone periphery are candidates to oppose using the OMT, if it is needed, and neither Mersch nor other potential Weidmann allies, such as Finland's Erkki Liikanen, have shown any desire to scupper it.
The ECB's other German policymaker, Joerg Asmussen, has simply stressed the conditions attached to the program and pointed out that an application for help would not automatically result in ECB bond buying.
"If we are in the situation (of activating the plan) and a country no longer fulfills the conditions, I would be against continuing the bond purchases," Asmussen said in December.
Full market access and participation in a European bailout are the ECB conditions for buying a country's debt with the OMT.
The ECB presented the plan last September, putting it in place to dispel what ECB President Mario Draghi then described as "unfounded fears on the part of investors of the reversibility of the euro".
"It is a very effective backstop, and it is there. But you know the rules," Draghi said at his main news conference this month.
Since the introduction of the plan, investors' mindset has switched from one of capital preservation to a hunt for yield, and they have returned to markets like Spain, whose borrowing costs have fallen from above 7 percent to below 5 percent.
With markets calmer, governments on the euro zone periphery are enjoying healthy demand for their debt. Spain saw solid demand at a bond auction on Thursday, riding a wave of enthusiasm for its debt relative to Italy's.
On Wednesday, Ireland launched its first benchmark 10-year bond since its EU/IMF bailout, a landmark on its route to becoming the first bailed-out euro zone country return to full market funding.
"It is an important step toward fulfilling the conditions for OMT," Cyprus's Demetriades told Reuters. "But for full market access, one needs to look at the entire broad range of maturities."
Demetriades dismissed the view that the ECB might want to keep the plan only for large countries, especially Spain and Italy. "Once a country fulfils the requirements of the program, then its size shouldn't work against it or for it," he said.
Late last month, France's Coeure also discussed the possibility of using the plan for two small countries - Portugal and Ireland - and stressed that the OMTs are "not a nuclear deterrent".
"They are here to be used if countries meet the conditions," he said, adding that the plan could be used when countries have regained sufficient market access.
In Ireland's case, it may not need to apply for ECB help. Wednesday's auction locked in the bulk of the financing the republic needs to the end of 2014.
(Additional reporting by Sakari Suoninen in Nicosia, and Lionel Laurent in Cannes. Editing by Jeremy Gaunt.)