KRONBERG, Germany (MNI) – The ECB’s new strategy for sovereign debt
purchases is a very effective tool to restore its impaired monetary
policy transmission mechanism and brings no inflationary risks, ECB
Executive Board member Joerg Asmussen said Friday.

“I can assure you,” Asmussen said in a text for delivery to a
business conference here, “government bond purchases will have no
inflationary consequences.”

“The bank note printing press will not be cranked up,” he pledged,
since the outlays will be sterilized by liquidity withdrawals elsewhere,

Nor is the OMT program an indirect way of financing governments,
Asmussen stressed. “We will buy bonds only on the secondary market, as
foreseen in our mandate. That means, we are buying from investors, not
governments.”

Moreover, governments will not “automatically” be eligible, even if
they have sought aid through the bailout fund ESM with participation of
the IMF, he said. “The ECB Council will decide independently in each
individual case, whether, to what extent and for how long intervention
is needed on the basis of monetary policy requirements.”

Such conditionality is necessary, since “impaired monetary policy
mechanisms can be repaired only when fundamental macroeconomic
imbalances are targeted,” Asmussen explained. Adjustments will not take
place via the apparently easy path of inflation, “but rather down the
hard road of reforms.”

The bailout countries are making progress toward regaining
competitiveness, notably by reducing unit labor costs and external
deficits, he noted.

“Crisis-management measures can buy time and build bridges, but
these must not be bridges to nowhere,” he said. “In order for Europe to
advance economically, governments must bring order to their budgets and
decisively implement structural reforms.”

Asmussen noted in this respect that public deficits of less than 3%
of GDP next year are within reach of most Eurozone countries, even
though most have a long way to go before reducing their debt to 60%.

In order for Europe to keep pace with rapidly growing emerging
economies, more fiscal and political integration is needed, he said,
praising German Finance Minister Wolfgang Schaeuble’s “important”
proposal to give the EU more power over national budgets via a stronger
economy commissioner. Yet necessary budget corrections should be the
purview of national governments, thereby limiting Brussels to veto
power, he suggested.

–Paris newsroom, +33142715540

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