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The details of the fresh ECB program contain an interesting part that is very relevant to Spain – ECB bond buying could be applied to countries which undertake a precautionary program: Enhanced Conditions Credit Line (ECCL).

Both methods,  a full ESM / EFSF adjustement program (like Greece, Ireland and Portgual) and the precautionary one, need the ESM and EFSF involved in the primary markets. However, the distinction will allow the Spanish government led by Rajoy to say that they didn’t apply for a full bailout.

Here is the relevant paragraph from the statement (emphasis mine):

A necessary condition for Outright Monetary Transactions is strict and effective conditionality attached to an appropriate European Financial Stability Facility/European Stability Mechanism (EFSF/ESM) programme. Such programmes can take the form of a full EFSF/ESM macroeconomic adjustment programme or a precautionary programme (Enhanced Conditions Credit Line), provided that they include the possibility of EFSF/ESM primary market purchases.

Reading it closely shows that primary market purchases by the bailout funds is not worded clearly enough. Perhaps Is this a possibility? Or is it a “must”?

In any case, opting for a precautionary program doesn’t carry the stigma of periodic troika visits, harsh austerity and burning buildings in Athens.

In the press conference, Draghi was specifically asked by a Spanish reporter if this clause was intended for Spain, but he rejected this claim. It’s hard to see this in a different way.

All in all, Draghi presented a good plan. It could have better with full QE, but that doesn’t make a critical difference. What is needed for the money to begin flowing is a formal request from Spain and an approval from German constitutional court on September 12th.

In the meantime, EUR/USD is continuing to slide, now trading at 1.2550, losing the gains made after details were leaked yesterday.

For more on the euro, see the euro to dollar forecast.

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