FRANKFURT (MNI) – Excess volatility in foreign exchange markets has
negative implications for economic and financial stability, European
Central Bank Governing Council member Erkki Liikanen told Reuters in an
interview released Friday.
Liikanen, who heads the Bank of Finland, also said the idea of an
orderly default mechanism for a Eurozone country, which was proposed
recently by Governing Council colleague Axel Weber and is also favored
by the German government, is “not on the agenda.”
And he asserted that perceived differences between the monetary
policy path of the ECB and other major central banks, including the U.S.
Federal Reserve, the Bank of England and the Bank of Japan, are
“exaggerated.”
Although “there is still a lot of uncertainty in the global
outlook,” there remains “a positive underlying momentum” for global
recovery, Liikanen insisted. But he conceded that the risks are on the
downside.
“Excess volatility and disorderly movements in exchange rates have
adverse implications for economic and financial stability,” he replied,
when asked if there was a “currency war,” as some have claimed. The can
“be harmful to growth, but that is as far as I go,” he added.
In recent weeks, “some commentators have exaggerated the
differences between the major central banks and their policy stance,”
Liikanen argued.
“The policy stance of the ECB has not changed,” he underscored,
arguing that pressures on price stability are “contained” and that
inflation expectations are “well anchored.”
Liikanen evaded a question about whether the ECB’s government bond
purchase program — known formally as the Securities Market Program —
should be jettisoned, as Weber argued earlier this week.
“By construction, the securities market program is temporary. It
was decided by the governing council to be necessary and it was
constructed as temporary,” Liikanen explained.
Asked about the problem of banks being dependent on ECB financing,
he replied that since the demand for excess liquidity is falling, the
“normalization” of the relationship between banks and the central bank
“is proceeding.”
Governments must take action to help banks that face a solvency
risk, Liikanen underscored. “As for the banks that are, let’s say, more
dependent on central bank financing, we believe they need to strengthen
their capital bases to make them stronger.”
One “cannot say it is unwelcome” that banks see themselves now in a
stronger position in terms of liquidity. “It is a positive
normalization,” he said.
Still the central bank will make its decisions on phasing out
support to the banking system “independently, when we assess the
situation in every meeting.”
[TOPICS: M$$EC$,MGX$$$,M$$CR$,M$X$$$]