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The European Central Bank's outright monetary transactions (OMT) or bond-buying programme was announced by Mario Draghi, president of the European Central Bank, in September 2012. Under the outright monetary transactions programme the ECB would offer to purchase eurozone countries’ short-term bonds in the secondary market, to bring down the market interest rates faced by countries subject to speculation that they might leave the euro.
The size of the programme is unlimited, lending credence to Mr Draghi’s remarks that he would do “whatever it takes” to save the euro. The ECB dropped any claim to seniority, which should reassure investors that any purchases would not subordinate their own holdings of peripheral bonds. As of February 2013 no country had yet applied for help under OMT, but the very fact of its existence had greatly calmed financial markets.
Mr Draghi stressed that any purchases under the OMT would be subject to "strict and effective" fiscal conditions, most likely to take the form of austerity measures and structural reforms. This was seen as an important statement as it answers a perceived weakness of a previous ECB bond-buying plan, the Securities Markets Programme or SMP, which was both limited in its scope and unconditional. However, the risk that a government might renege on its promises after receiving help has prompted suggestion that the OMT works best if it is not put into action.
Some have argued the ECB should have acted much sooner, rather than encouraging austerity measures implemented as a response to the crisis. In February 2013, FT columnist Martin Wolf wrote: "By adopting OMT earlier, the ECB could have prevented the panic that drove the [bond] spreads that justified the austerity. It did not do so. Tens of millions of people are suffering unnecessary hardship. It is tragic."
Meanwhile it was reported that some investors and analysts were wondering if the OMT programme's achilles heel was its requirement for governments to sign up to a reform programme likely to include austerity measures. They pointed to the outcome of the February 2013 elections in Italy. It was said that the inconclusive election was a result of the Italian people's rejection of harsh austerity measures that had deepened the country's recession.