FRANKFURT (MNI) – The European Central Bank’s non-standard measures
have helped to buy time and maintain price stability in the Eurozone,
but they do not come without challenges and are no substitute for
necessary fundamental adjustments, ECB Executive Board member Jose
Manuel Gonzalez-Paramo said on Wednesday.
The central bank’s non-standard measures, which have included
unlimited liquidity allocations up to a maturity of three-years, looser
collateral rules and purchases of sovereign bonds, “have helped,
implicitly at least, to buy time for the necessary fundamental
adjustments to take place,” Gonzalez-Paramo said. He was speaking at an
ECB colloquium held in his honour shortly before his tenure on the
Executive Board expires at the end of this month.
Gonzalez-Paramo outlined a number of risks that come with the
bank’s non-standard measures, including morale hazard for governments
and banks, the emergence of addicted banks, as well communication
difficulties.
“Communicating monetary policy becomes more complicated,” he
explained. “It is more complicated to understand, to communicate and to
assess in terms of effectiveness. So accountability is made more
difficult.”
For these reasons, non-standard measures should be temporary,
Gonzalez-Paramo said, warning of the side effects of the measures
lasting too long.
“The central bank should outline the strategy for an exit as soon
as economic and market conditions make it possible,” he said.
Non-standard measures “should include exit mechanisms.”
In the pursuit of price stability, the central bank should be
focused and flexible with regards to both standard and non-standard
measures, Gonzalez-Paramo continued. “Franky, I’m convinced that the ECB
has done a good job in maintaining this delicate balance between
alertness and flexibility on the one hand, and a firm commitment to be
objective…in preserving price stability.”
“In that context, our non-standard measures have contributed to
maintaining the anchoring of inflation expectations consistent with our
medium-term objective,” he said.
–Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com –
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