LONDON (MNI) – The compliance with EU/IMF programs are a
precondition for ongoing liquidity support to national banking systems
in trouble, European Central Bank Executive Board member Lorenzo Bini
Smaghi said Thursday.
Bini Smaghi stressed that the boundaries between monetary and
fiscal policies should not be blurred and that the monetary policy
“cannot take up the slack where fiscal or other authorities fail to live
up to their responsibilities.”
“The Eurosystem has provided and is still providing support to
those national banking systems which face liquidity needs,” Bini Smaghi
observed. “I would like to underline that the key precondition for such
a support is that the country concerned sticks to the EU/IMF adjustment
programme and are on track.”
The responsibility for ensuring the conditions for the Eurosystem
to support the banking systems of troubled peripheral countries lies
with the authorities of the countries themselves, he argued. “There
should be no doubt about it.”
ECB policy-makers have recently cautioned that the central bank
would not accept Greek bonds as collateral in its refinancing operations
should political leaders opt for any kind of restructuring of Greek
debt.
Bini Smaghi said that while central banks “should and do provide
liquidity support to financial markets, they cannot provide solvency
support.”
“That would represent an encroachment upon the domain of the fiscal
authorities and blur the distinction between monetary and fiscal policy”
and thereby threaten the a central bank’s independence and “credible
pursuit of price stability,” he cautioned.
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