BRUSSELS (MNI) – The mere announcement of the European Central
Bank’s Outright Monetary Transactions (OMT) programme has significantly
benefited the market, ECB President Mario Draghi said on Thursday.

“First of all we have a return of flows from the rest of the world,
in particular from US money market funds, which was plus 16% in
September, month-on-month, for the third consecutive month since the
announcement,” Draghi said. In addition, latest data show that only 30%
of this lending was secured – the lowest since March, he noted.

Euro area governments and corporations have also successfully
placed a number of US dollar-denominated bonds since the ECB’s OMT
announcement, Draghi observed.

The euro area’s so-called Target 2 balances, which have been
stabilised now for two or three months, are another sign of how the
imbalances in the euro area are unwinding, Draghi said.

“All this has been encouraging,” the ECB chief said, arguing that
the changed environment has “been the equivalent of a further expansion
in monetary policy, because conditions in financial market are
considerably easier now than they were two or three months ago.”

The OMT program is a “fully effective backstop mechanism against
tail risks in the euro area,” Draghi said. Asked whether the ECB wanted
Spain, the most likely first beneficiary of bond buys, to request such
aid, he replied that it was entirely up to Madrid and other Eurozone
governments to decide whether they want to make use of it.

Although the OMT announcement has had a positive effect on markets,
the ECB is still “not satisfied at all” with financing conditions in the
euro area, the ECB president said.

“Are we satisfied with the financing conditions? No we are not at
all satisfied,” Draghi said. “We are observing a fragmentation of the
euro area,” he added, saying that the ECB’s priority now is “to repair
the monetary policy transmission channels so that our monetary policy
will actually be able to deliver price stability.”

The OMT “helps to fix the transmission mechanism but there are many
other reasons that the monetary policy transmission mechanism is not
working”, Draghi said. He cited a “lack of appropriate policies [by
national governments] that are now in the process of being fixed.”

“These countries have found themselves in this (situation) because
of the policy mistakes of the past,” he asserted.

–Brussels Newsroom, +324-952-28374; pkoh@mni-news.com

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