The European Central Bank kept a lid on its bond purchase program last week as it presented plans to launch a new and more transparent scheme that will be tied to intervention by the European rescue funds and political action.
In response to a renewed intensification of the debt crisis with Spain and Italy now at its center, ECB President Mario Draghi said on Thursday the ECB may buy further government bonds, but only once countries had turned first to the region's rescue funds for help and agreed to strict conditions.
Some investors were disappointed by the lack of immediate ECB action after Draghi had raised their expectation a week earlier by saying the ECB would "do whatever it takes" to save the euro, which had eased Italian and Spanish borrowing costs.
The premium that investors demand to hold 10-year Spanish or Italian bonds rather than two-year paper has also ballooned since Draghi said the new program would be different from the first and would, for example, focus on shorter-dated maturities.
Last week's lack of purchases keeps the amount the ECB has spent since starting its Securities Markets Programme (SMP) in May 2010 at 211.5 billion euros.
As usual, the ECB will take the same amount as weekly deposits from banks on Tuesday to counterbalance the buys and neutralize any threat of them fuelling inflation.
The ECB has barely used the SMP this year and has not bought any bonds for 21 weeks despite a severe intensification of the eurozone debt crisis, as the ECB grew increasingly wary of the risks involved and doubtful of the program's impact.
Critics say the programme treads dangerously close to the ultimate ECB taboo of financing governments, but many economists believe unrestricted purchases by the bank may be the only way to bring the debt crisis under control in the short term.
The central bank has been badly scarred by the SMP. The failure of the purchases to tame the crisis has hurt its reputation and last year it saw two top German policymakers, Axel Weber and Juergen Stark, quit over the purchases.
This could change with the new programme.
By joining forces with Europe's rescue funds, the ECB aims to complement the funds' firepower while pressure is kept on governments to reform. The ECB also aims to be more transparent by saying which government bonds it buys and in what quantity.
Under its current programme, the ECB does not give a country by country breakdown of its purchases, but euro zone sources say it has spent about 40 billion euros on Greek debt and concentrated on Italian and Spanish debt with the 140 billion euros spent since August last year.
The ECB and the 17 euro zone national central banks will continue to buy government bonds in the secondary market from banks and other bondholders, a tactic that allows it to avoid claims it is directly financing governments.
Details of the new programme still need to be worked out by ECB committees and the Governing Council has to take a formal decision to launch it.
A Reuters poll, done last week after Draghi's announcement of the new programme, showed that 26 of 37 economists said they expected the ECB to start buying Italian and Spanish bonds in September.