DUBLIN (Reuters) - The European Central Bank’s bond-buying scheme shows the bank’s determination to preserve the euro but will not by itself restore debt spreads to pre-crisis levels, the head of Ireland’s central bank said on Thursday.
ECB President Mario Draghi said in September the bank was ready to buy unlimited amounts of bonds focused on maturities of one to three years of countries that requested a European bailout and met strict conditions.
The plan has yet to be triggered and Spain, seen as most likely to make first use of the measure, last month asked for assurances that intervention under the program would bring its debt yields down.
“The ECB has made clear its determination to do what is necessary to preserve the euro. The OMT (Outright Monetary Transactions scheme) provides the necessary tools to deliver on that commitment,” Patrick Honohan, Ireland’s representative on the ECB board, said.
“Still, it is not to be expected that the OMT will by itself restore the tight uniformity of spreads that prevailed for the first decade of the euro,” he added in the text of speech to be delivered in Basel, Switzerland.
Honohan’s comments echo remarks by fellow ECB policymaker Benoit Coeure, who said in December that the aim of the scheme was not to eliminate the premium over German Bunds that euro zone governments pay to borrow on the market.
Spain, which said on Tuesday its gross bond issuance target for 2013 was 121.3 billion euros - up 7.6 percent on last year - has seen the yields on its 10-year government debt fall to 5.09 percent since Draghi announced the new initiative.
That is still higher than bailed-out Ireland whose comparable debt trades at 4.43 percent, a level Honohan said that was a poor return for the sizable budget adjustments Dublin has made since its “relatively extreme” financial crisis began.
Ireland, which is looking to raise around 2 billion euros in its first debt sale of 2013 on Tuesday, has made spending cuts and tax hikes equivalent to 18 percent of annual output since 2008.
“Irish sovereign spreads may no longer be bloated by redenomination risk, but at 300 basis points at the long end, they do seem to reflect a credit risk premium that is poor reward, so far, for what has been a sizable fiscal adjustment effort,” he said.
Reporting by Padraic Halpin; Editing by John Stonestreet