European Central Bank President Mario Draghi has delivered a roadmap for rescuing the eurozone from potential meltdown but the onus is now on Spain to swallow its pride and apply for help to bring down crippling borrowing costs.

Draghi met or exceeded market expectations by announcing yesterday that the ECB was ready to buy unlimited amounts of bonds of up to three-year maturity of countries that request a European bailout and fulfil strict policy conditions.

The Italian ECB chief asserted his authority by isolating dissent from Germany’s Bundesbank, which publicly criticised the decision, while maintaining pressure on eurozone governments to pursue budget discipline and economic reforms.

However, his escape route from the eurozone’s sovereign debt crisis, which has raged since early 2010, hinges on Madrid requesting assistance, which Prime Minister Mariano Rajoy still seems to be wriggling to avoid or delay.

Other political landmines litter the road out of danger, ranging from Germany’s constitutional court to Greece’s failure to meet its fiscal targets, and the growing reluctance of Dutch, German and Finnish lawmakers to support any further bailouts.

And the eurozone’s 17 governments are still far from agreeing to pool more sovereignty in a closer fiscal, banking and economic union to fix the single currency’s design flaws.
But the ECB decision does at least offer the prospect of a turning point in the crisis by providing a conditional buyer of last resort for vulnerable countries’ bonds.

Draghi’s insistence on seeking International Monetary Fund involvement in designing and enforcing the policy conditions of any rescue programme could make it politically harder for Spain. Rajoy is desperate to avoid the humiliating quarterly monitoring visits by a “troika” of IMF, EU and ECB inspectors, that were imposed on Greece, Ireland and Portugal in return for bailouts.

“We wonder whether the ‘Troika-esque’ appearance of the ECB’s Outright Monetary Transactions might result in Spanish resistance to petitioning for such a bailout,” Rabobank rates strategist Richard Mcguire said. “If so, market pressure may be needed for Spain to agree to a programme.”

So even though Draghi’s statement cheered investors, sending Spanish bond yields tumbling and European shares soaring, more market flare-ups may be in prospect if Madrid tries to tough it out and get over an October funding hump without a bailout.

Italy, the other southern European country under severe bond market pressure, is hoping that eurozone and ECB support for Spain will douse down markets and spare it from having to seek direct help for itself.

After talks with German Chancellor Angela Merkel as the ECB council met, Rajoy made clear he was in no hurry to apply for a programme and told incredulous journalists they had not discussed conditions for possible assistance.

Sources familiar with recent discussions say France and the European Commission have urged him to apply for a programme in time for an Oct. 18-19 European Union summit to approve a rescue. That would ensure ECB bond-buying could be activated before Madrid’s refinancing crunch later next month.