The ECB's earlier Securities Market Program (SMP) failed. Citibank strategist Jamie Seale believes OMT won't fare better. He called it dangerous. Will it do anything more than buy short-term relief? It's no solution, he stressed. "The economic backdrop remains dire."
SMP initially sent peripheral nations' sovereign yields lower. Doing so didn't last long. Moreover, Draghi may intend to let rhetoric more than policy do most heavy lifting. Unfulfilled promises only work for so long.
Goldman Sachs also dissed him. It called OMT SMP 2.0. It said no easy way out of crisis conditions exists. An ECB declaration about being pari passu leaves unanswered questions relating to voluntary debt restructuring. It also provides no assurance about sound policy measures following promises. Why now when not earlier.
Bank of America economist Laurence Boone doubts OMT's success. Draghi's plan is more negative than positive. Conditionality was tougher than expected.
The IMF's role as monitor means Big Brother is watching. These factors lessen the likelihood that troubled countries will seek help or as much as they might have otherwise.
Draghi announced no yield targets, no bond purchases ex-ante transparency, and no technical details on how OMT differs from SMP.
Ireland and Portugal won't qualify for help until they regain market access. Greece is too far gone to help.
Peripheral banks aren't provided relief. Other reservations were raised. JPMorgan Asset Management 's Michael Cembalest said Draghi may have to engineer a massive debt restructuring and take huge losses. In a note to clients, he explained: