The ECB's new bond-buying programme

(FRANKFURT) - European Central Bank President Mario Draghi on Thursday unveiled a new hotly awaited programme to buy the bonds of struggling eurozone countries in a bid to save the crumbling 17-nation bloc.

Following are the main points of the programme, named "Outright Monetary Transactions" (OMT).

CONDITIONALITY:

-- Draghi made it clear the ECB would only buy the bonds of countries (which has the effect of driving down the costs they pay to borrow on the open market) that have already applied for aid from the EU's bailout funds.

-- A "necessary condition" is "strict and effective conditionality" attached to an EU programme -- either the European Financial Stability Facility (EFSF) or the European Stability Mechanism (ESM), said Draghi.

-- Under a full rescue programme a country would have to agree to budget cuts and structural economic reforms.

-- However Draghi said countries could also apply for so far untested precautionary programmes from the EFSF and ESM, which would mean they would not need to meet additional conditions beyond those made to Brussels to bring their deficits and debt to EU limits.

-- The International Monetary Fund (IMF) would be invited to be involved in any possible programme.

-- The ECB chief warned the bank would terminate the programme either once borrowing costs have been reduced to a satisfactory level or if it senses a country is not complying with the conditions attached to the programme.

SCOPE AND VOLUME:

-- There would be "no ex ante quantitative limits set" on the amount of bonds bought, Draghi said. This is considered important to prevent speculation against the euro because traders know the ECB has unlimited firepower so are afraid to bet against it.

-- The purchases would be focused on what experts call the "short end of the yield curve", i.e. the ECB would buy bonds expiring in between one and three years.

-- However, Draghi said he would not set a limit on borrowing costs -- as rumoured in the media, saying that the interventions would be adequate to achieve the required objectives.

-- The bond purchases will be sterilised, meaning the ECB will absorb the new liquidity via other mechanisms to keep the volume of the money supply stable and avoid sparking inflation.

SENIORITY:

-- Draghi vowed that bonds bought by the ECB would receive the same treatment as bonds bought by private investors.

-- Previously, bonds purchased by the ECB were considered "senior", meaning the ECB would get its money back first in the event of a default. This was seen as discouraging private investors from buying the assets and underminging the intervention.

TRANSPARENCY:

-- The total amount of bonds bought over the whole eurozone would be published on a weekly basis, Draghi said. A country-by-country breakdown would be published every month.

COLLATERAL:

-- As collateral for its operations, the ECB will accept government bonds from any country, regardless of its credit rating, Draghi pledged. This does not apply to Greek bonds, the president specified. The change means banks in vulnerable countries won't find themselves in a bind to find collateral for ECB loans when ratings agencies downgrade the sovereign.

PREVIOUS PROGRAMME:

-- With the coming into force of the OMT, the old programme (known as the Securities Market Programme or SMP) has been shelved.

-- The bonds already bought under this programme (to a value of some 208.5 billion euros) will be held until they mature, Draghi said.