ROME (MNI) – In the coming weeks, the European Central Bank will
ready the policy instruments in its toolbox for application and could
cut interest rates further, Governing Council member Ignazio Visco said
in an interview published Sunday.
“The economy is deteriorating everywhere in the world,” the
governor of the Bank of Italy told Italian daily La Repubblica. “We are
in a phase where the prospects for recession persist and the slump in
manufacturing activity is intensifying, not only in the Eurozone but
also in other advanced economies as well as in emerging economies.”
“In this scenario of continual slowdown, more accommodative
monetary policy can be expected in the next months,” he said.
Visco explained the initial negative reaction of markets to the
policy “design” outlined Thursday by ECB President Mario Draghi as a
“misunderstanding” and predicted that concrete responses to still open
questions would be ready by September.
“Fundamentally, financial actors want two things: they want to know
how the ECB will intervene – not only in the open market to guarantee
liquidity for the system and the private sector – and they want to know
when the instruments will be operational,” he explained. “The answer to
the first question has arrived. Now the answer to the second must
arrive. From this point of view, I expect close collaboration between
the Eurogroup and the ECB between now and September.”
August must not be a month of vacation, neither for institutions
like the ECB nor for Eurozone governments – “those under attack and the
more virtuous ones,” Visco insisted. “It must be confirmed, with
concrete acts, that no one questions the irreversibility of the euro,
the process of consolidation of public finances and action to support
economic growth.”
Asked specifically about the ECB’s bond-buying program SMP, a new
long-term refinancing operation and a reduction in collateral for access
to ECB liquidity, Visco replied, “These instruments are all at our
disposal now. They must be prepared on a technical basis, and that is
the work our economists are already doing and should finish in August.”
“But the die is cast: the ECB will have all the firepower to
intervene,” he continued. “And, as has been said, with resources that
will be absolutely adequate.”
Visco conceded that the bailout funds, the European Financial
Stability Facility and the future European Stability Mechanism, still
have “limited resources and perhaps not enough. But the political
signal is there, and it applies to all countries, starting with
Germany.”
The central banker dismissed the notion that Germany was exercising
a kind of veto until its constitutional court has passed a ruling on the
ESM. He noted that there had been no formal vote on the Governing
Council on Draghi’s design and that Bundesbank President Jens Weidmann
had merely expressed in the discussion his “perplexity” over purchases
of government debt in secondary markets.
“My view is that if government bonds are purchased to finance
sovereign debt, then the Bundesbank is right,” Visco said. “But if this
is done to restore the monetary policy transmission mechanism, then it
is entirely within the mandate of the Treaties. And this was the
collegial conclusion of the ECB’s Governing Council.”
The idea that governments which seek the ECB’s assistance should
submit their fiscal policy for approval is “completely logical,” he
argued. “The Eurosystem does not want to waste its ammunition without
precise guarantees. Residents sharing a house must respect its rules and
accept a limitation of their own sovereignty in the common interest of
the house.”
Turning to Italy, Visco said that while important progress on
reforms had been made and that credibility was on the mend, the crisis
had intensified of late. “Unfortunately we will have very weak growth in
2013 as well.”
Still, there appears no need for assistance from bailout funds “at
the moment”, he argued. In the future, “if markets are convinced that a
page has been turned, if Italy does not abandon the discipline on public
finances and reinforces its commitment to correct the factors that
prevent the country from growing, then there will be no need of
intervention by a fund.”
“Much depends on us,” Visco said.
–Paris newsroom +331 4271 5540; email: ssandelius@marketnews.com
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