FRANKFURT (MNI) – The convergence of interest rates in the Eurozone
is no end in itself and is only justified to the extend that rates
reflect fundamentals, the Bundesbank said in its Monthly Report released
Monday.
“The convergence of nominal interest rates in monetary union is not
an end in itself and only desirable if it is based on fundamentally
justified convergence and does not undermine the steering function of
financial market prices,” the Bundesbank said.
While the comment is part of a special report focused particularly
on balance of payment developments within the Eurozone, it can be read
as a clear warning against aggressively driving down refinancing cost of
troubled Eurozone countries via ECB bond market intervention.
The ECB stands ready to intervene in secondary markets, under
certain conditions, to help remove the “convertibility premium”
associated with fears of a possible break-up of the Eurozone. However,
it remains unclear how the ECB will discern how much of refinancing cost
is to be associated with such fears.
“The sum of the wide-ranging support measures of the EU and the IMF
as well as the non-standard monetary policy measures of the Eurosystem
has prevented a much more fierce adjustment process of the countries in
question in monetary union and has given them breathing room,” the
report said.
“They can sustainably strengthen confidence in the functioning of
the European Monetary Union only if they remain temporary and are
accompanied by consistent economic reforms. Should this not happen or
not happen sufficiently, this will contribute to cementing the current
situation,” the central bank warned.
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— Frankfurt bureau: +49 69 720 142; email: jtreeck@mni-news.com —
[TOPICS: M$X$$$,M$$EC$,MT$$$$,M$G$$$,MGX$$$]
