TOKYO (MNI) – European Central Bank policymakers attending the
International Monetary Fund and World Bank meetings in Tokyo signalled
that the ECB is waiting to see if Spain seeks a bailout from the
European Stability Mechanism (ESM) and will not cut interest rates or
undertake new “non-standard” measures before then.
The central bank also floated a new idea to help Greece reduce its
debt burden via a voluntary debt buy-back scheme, while continuing to
reject any calls that it could contribute to relieving Greece of its
debt mountain.
A number of ECB officials, including Vice-President Vitor
Constancio, noted that interest rates are appropriate at the moment.
Governing Council member Christian Noyer argued that a rate cut might be
wasted as long as the monetary transmission mechanism remains impaired.
“The precise point of the policy rate at the moment is less
important than the transmission of our policy. For us the major problem
is, first, fix the transmission problem,” Noyer said.
At the same time, ECB Executive Board member Joerg Asmussen
reiterated that the central bank will not activate its OMT bond
purchases – the tool with which it aims to restore the transmission
mechanism – for Portugal, Ireland or Greece any time soon.
“The OMT decision, to quote this fully, says countries can qualify
when they are regaining full bond market access and the word ‘bond’ is
there on purpose,” Asmussen said. Neither Portugal nor Ireland qualify,
he suggested.
Asmussen and his fellow Executive Board member Benoit Coeure said
involvement of the International Monetary Fund was a pre-condition for
activating the OMT program.
When announcing the new bond-purchase program on September 6, the
ECB said that “the involvement of the IMF shall be sought.” Queried at
the time about that phrasing, ECB President Mario Draghi said the ECB
wanted the IMF to help design the conditions that would be attached to
ESM programs, which are a pre-condition to any ECB bond buying under the
new plan. “But we cannot dictate what [the IMF] should do,” he said.
Coeure told Germany’s Die Welt that, “for me personally it’s clear
that without a certain involvement of the IMF, we should not buy any
sovereign bonds.” While the IMF does not necessarily have to contribute
financially, it must help design and supervise reform programs, he said.
As the ECB waits for governments to take the steps that will allow
it to unleash possibly unlimited bond market interventions, the central
bank’s steady hand appears to apply not only to interest rates but also
to other non-standard measures. Governing Council member Josef Bonnici
said that provision of extra liquidy is currently not being actively
discussed.
Debates about how to help Greece stay in the Eurozone, however,
appear to be all the more active. Asmussen floated a new idea foe
helping Greece reduce its debt burden.
“At the moment it looks like Greece’s debt level will rise to well
above the target of 120% of GDP by 2020,” Asmussen said in an interview
with German Sueddeutsche Zeitung. “Thus, one has to consider elements
that could make it possible to achieve that goal. One possibility would
be buying back debt.”
Asmussen offered no details on where Greece might obtain the funds
to undertake such a buy-back, the newspaper reported. But “it is quite
clear that the ECB could not enact such a bond buy back,” he stressed.
Germany’s Frankfurter Allgemeine Zeitung cited German “government
sources” who described the idea as unrealistic. German Finance Minister
Wolfgang Schaeuble noted that on first glance, “I would have some
questions about this proposal for which I do not see any answers.”
–Frankfurt newsroom +49 69 72 01 42; e-mail: jtreeck@mni-news.com
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