–A story that ran on Mainwire Monday at 1745 GMT/1345 ET may have
created the misperception that European Central Bank Governing Council
member Luc Coene had said it was unlikely the central bank would
actually buy any sovereign bonds under its new “Outright Monetary
Transactions (OMT) program. That is not what he said. Coene, who heads
the Belgian National Bank, has confirmed that when he said he thought it
was unlikely the ECB would “engage in outright bond purchases,” he was
referring not to OMT but to the question of whether the central bank
might eventually move to full-blown quantitative easing (QE). An edited
version of the story, which makes that distinction clear, is below:
LONDON (MNI) – European Central Bank Governing Council Member Luc
Coene thinks it is unlikely that the central bank will engage in
full-blown quantitative easing.
“I think it’s very unlikely – given the mandate we have and the
treaty we have – that the ECB will engage in outright bond purchases,”
Coene told a London audience Monday on the question of whether the ECB
could envision a policy of full-blown QE. “Of course, never say never as
they say,” he added.
With regard to the ECB’s recently announced OMT bond buying
program, Coene reiterated that governments must first request an aid
program from the European bailout fund in order to benefit from such
interventions by the central bank. He referred in particular to Spain,
which is considered the likely first candidate for sovereign debt
purchases under OMT.
“It’s clear that if Spain decides not to demand a program with the
EFSF we will not buy Spanish bonds. The same is valid for the other
countries,” Coene said. “Whatever country wants us to buy its bonds has
to submit to the program with appropriate conditionality and then only
on that condition will we buy bonds and only on the short part of the
maturity.”
He stressed that countries would have to abide by strict conditions
to qualify for ECB purchases of their bonds.
Coene, who heads the Belgian National Bank, noted that other policy
options exist for the ECB should they be needed, including the
possibility of cutting interest rates further or providing Eurozone
banks with more long-term unlimited loans at a fixed rate (LTROs).
“You have different alternatives: Further lowering interest rates
to some extent. You can also try to extend the LTROs to some extent. You
could also do some LTROs with private credit claims as collateral for
instance,” he said. He also indicated that a negative deposit rate “is
indeed one of the possibilities.”
Coene told the audience that the threat of inflation was one
argument against QE; another is that it would allow “profligate”
governments to continue with their bad spending habits.
Coene cautioned that the ECB’s non-standard policy measures did
nothing to tackle the fundamental problems of the Eurozone.
–London newsroom: 4420 7862 7492;
–wwilkes@marketnews.com; dthomas@marketnews.com
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