PARIS (MNI) – Financial market analysts saw few surprises in the
European Central Bank’s “Outright Monetary Transactions” plan, which was
officially unveiled Thursday, largely because most of the details had
been leaked ahead of today’s press conference by ECB President Mario
Draghi.

Some analysts were encouraged by the plan, the main features of
which are strong conditions on beneficiary countries; purchasing of
sovereign securities with maturities of three years or under; no senior
creditor status for the ECB; and more detailed public reporting of bonds
purchased – by volume, maturity and country.

Others, however, pointed to potential problems ahead even as they
conceded that Draghi may have bought time with the announcement. Some
noted the OMT plan could hit some headwind because it depends on the
willingness of governments to enact stiff reforms, and the track record
on that score has not always been great. Others argued that the OMT
program does not address the fundamental issue of economic and financial
disparities among Eurozone countries. Others noted that a deteriorating
Eurozone economy will need to be addressed.

Exerpts from analysts’ comments are below:

CARSTEN BRZESKI, ING: “All in all, the ECB has presented a big new
bazooka which should help buying time. This is probably the furthest the
ECB can go to help governments. The focus on the monetary policy
transmission and strict conditionality should also calm the Bundesbank
temper, even if they would not admit it. However, the emphasis on the
transmission mechanism is also a danger as it still contains a logical
contradiction. With the OMT, the ECB will only repair the transmission
mechanism in countries which ask for EFSF/ESM [aid]. But what about the
other countries? It remains a bit strange. For the time being, one thing
is clear: never underestimate Mario Draghi. He clearly delivered on his
‘believe me it will be enough’ announcement. A man, a word. But as he
said himself: ‘The proof is in the pudding’.”

RALPH SOLVEEN, Commerzbank: “We are afraid that this massive
intervention of the ECB will reduce the incentive for the national
governments to undertake the necessary reforms and to follow a strict
consolidation course. We think that there is a chance that the crisis
will calm down in the months ahead if investors realize that the
governments of the core countries and the ECB are ready to increase
their help for the periperal countries as far as is needed to stabilise
the monetary union. However, the price for this will be a further
transformation of the monetary union into an ‘Italian monetary union’
with higher inflation, weaker growth and a weaker euro.”

MARCO VALLI, UniCredit: “The framework announced today creates a
substantial and credible firewall, which reduces the risk of a
disruptive market event in the near term while keeping pressure on
governments to continue to reform. As such, this is a game-changer,
although it will be impossible for the ECB to neutralize all the threats
to the survival of the Eurozone. The risk that the government of a
systemic country will backpedal on reforms or even fail to agree on
conditionality is still there and will continue to exist, but it is
definitely good news to hear that this is now the only risk that markets
should be pricing in.”

JULIAN CALLOW, Barclays: “Mr Draghi has now thrown down the
gauntlet to the government of Spain and potentially Italy to request a
precautionary programme from the Eurogroup. In our view, we expect the
Spanish government to request such a programme by early October at the
latest; it could come this month still and we would imagine that some
form of discussions are likely to be underway between the Spanish
government, EU and IMF. In our view, Italy would also benefit from being
in such a programme, given that investors could become more concerned
about the outlook as it moves into the pre-election environment.”

MARC OSTWALD, Monument Securities: “Perhaps most interesting was
the lack of confidence that Draghi projected, given his comment that the
OMT ‘should produce better results’ on the credit front, perhaps
reflecting his over-exuberant claims about the LTROs, and equally that
much of the potentiality of the OMT’s success rests on the shoulders of
politicians.”

SYLVAIN BROYER, Natixis: “I’m not sure that this OMT program will
be enough to stop the segmentation of the Eurozone in terms of the real
economy. Maybe the OMT will be able to allow a better transmission of
monetary policy in the European peripheral countries, but it will not
bring German investors and German domestic savings to be invested again
in Spain, Portugal or Ireland. So, so far we have done nothing efficient
against the segmentation of the Eurozone.”

ROBERT BRUSCA, FAO Economics: “We have no way of knowing how some
of these very uncompetitive countries will gain back 20 to 30 percentage
points of lost competitiveness. This is kicking an ever heavier can down
the down the road; wonder when the ECB breaks its foot trying to execute
a kick?”

BENJAMIM REITZES, BMO Capital Markets: “The ECB did almost exactly
what was expected, and in this case that’s a positive. The details of
the new OMT were consistent with the leaks over the past few days, with
the easing of the collateral framework a little extra boost for European
banks. With the ECB’s purchase program in place, the next step is to
wait for Spain or Italy to request EFSF/ESM assistance. However, given
the recent drop in yields for both countries, a request likely isn’t
imminent. Today’s announcement should help contain the crisis, but the
weak economic outlook looms, the ECB will need to ease policy further in
the months ahead.”

KEN WATTRET, BNP Paribas: “The communication at the press
conference today was much approved on a month ago and the ECB cleared up
a lot of the uncertainties left hanging on the modalities of the new
framework. This is welcome, though the surprise factor was limited by
the leaks beforehand. The stumbling block, as before, is that the
procedure will only be set in motion for non-programme countries when a
country asks for assistance. The better the market reacts to the ECB
announcement, the less likely a country is to be panicked into asking
for support. The comments from Spain this afternoon do not suggest that
a change of position in Madrid is imminent.”

JAMES ASHLEY, RBC Capital Markets: “We think the OMT is a
significant step forward by the ECB and shows that they are willing and
committed in acting to repair the monetary transmission mechanism. I
think it will have a significant market impact….In terms of inflation,
the big surprise there was really the midpoint for 2013. That was news
to our expectations. The fact that we got a 0.3 upward revision to the
midpoint is significant and I think it’s hard to explain that just by a
reference to commodity prices and in particular energy prices. At the
same time, it does still show that inflation is going to be broadly in
line with the ECB definition of price stability within the policy
relevant horizon. In fact, if you fast-forward to 2014, it would be fair
to say that late next year and going into 2014, inflation will be
probably be very significantly below the ECB’s definition of price
stability. So, there is still room for the ECB to cut the refi rate
once.”

BJORN EBERHARDT, Credit Suisse: “The bond-buying details to a large
degree met market expectations. I think there were no big surprises,
either positive or negative. It was right that no specific yield cap was
given, because that would have taken away a certain amount of
flexibility. I found the IMF role a relatively interesting aspect,
because this of course raises the pressure on the relevant countries,
when the IMF is involved. Especially with the light program, the
enhanced conditions credit line, if they’re still seeking the backing of
the IMF, as was proposed, I do think this also raises the credibility of
such a program a little bit.”

FREDERIK DUCROZET, Credit Agricole: “It was a decent delivery by
the ECB and a good communication exercise by its president. He did a
good job in stabilizing markets expectations in particular by providing
a good deal of details with regards the OMT. I think the most positive
surprise was in terms of conditionality, in terms of seniority, and also
in terms of maturity. All those three aspects of the program were clear
enough and I think it was a success. I continue to see another rate cut
by the end of this year. I think that there was a bit of tactical
consideration once again to delay this rate cut. But the fundamental
justification remains.”

STEFAN SCHILBE, HSBC Trinkaus: “I find it understandable that
Draghi did not communicate clear yield caps. At the same time, I
consider it very important that Draghi pointed to the fact that
purchases can be pulled back in case reforms are not implemented. I
think it now of course comes down to whether countries will in fact
place an aid request. Then we will have a very important weapon, at
least to buy time and to calm the markets. I do believe that we will see
another rate cut. The ECB surely did not enact one today, despite a
worsening outlook, because the impulse of a rate cut would possibly have
been lost under this whole sovereign bond buying program.”

–Paris Newsroom, +331-42-71-55-40; paris@marketnews.com

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