Draghi waits at the altar as Rajoy dithers on bailout

While Spanish Prime Minister Mariano Rajoy is still pondering whether to seek a second bailout to trigger European Central Bank intervention in the secondary market, ECB President Mario Draghi has said that the bank is ready to put its bond-buying program into action whenever is necessary.

"I could say that today, we are ready," Draghi told a news conference after the ECB’s monthly monetary policy meeting, at which it left its key lending rate on hold at 0.75 percent. "We have a fully effective backstop mechanism in place once all the prerequisites are in place as well."

Draghi said it was up to the governments concerned to decide what they want to do. Rajoy has said he wants to study the conditions that would be imposed on Spain for a second bailout, but almost by way of encouragement Draghi said these would not be harsh. "There is a tendency to identify conditionality with harsh conditions," Draghi said. "Conditions don't need to be necessarily punitive."

Rajoy is widely believed to be hesitant over requesting a bailout until after regional elections in his native Galicia, a Popular Party stronghold, on October 21. Campaigning for the ballot began at midnight on Thursday.

Draghi said Spain had made significant progress in the process of fiscal consolidation, structural reforms and restoring its banking system back to health, but warned significant challenges still lie ahead.

The governor of the Bank of Spain, Luis María Linde, also said on Thursday that he believes Spain could bear the brunt of conditions imposed in the case of the country seeking a second bailout. These, he said, are likely to be restricted to supervision and structural measures over the medium-to-long term rather than demands for stringent spending cuts.

“Of course there may be some measures that affect spending, but I don’t think this would mean [...] anything very significant, nothing that isn’t manageable,” the governor told lawmakers.

Draghi was speaking as the Spanish Treasury sold 3.992 billion euros in two-,three- and five-year bonds in what will be a difficult month for the Treasury, with over 29 billion euros in bonds due to mature.

Significantly, the bulk of the bonds sold were shorter-date. The ECB will intervene in debt with maturities of three years and under. The Treasury sold 1.287 billion euros in three-year debt at a marginal yield of 4.028 percent, up from 3.910 percent at an auction held in September. It sold a further 1.284 billion in bonds maturing in October 2014.