–ECB Could End OMT Program, Sell Bonds If Country Not In Compliance

FRANKFURT (MNI) – The European Central Bank can no longer be
limited to a price stability mandate since it must take account of
broader monetary policy concerns in the Eurozone crisis, ECB Executive
Board member Joerg Asmussen said Thursday.

He said the bank’s new OMT bond-buying program is designed to
strike this delicate balance.

Taking questions after a speech at Goethe University here, Asmussen
said the ECB would be prepared to end bond purchases for a country that
was not in compliance with the conditions agreed under its program with
the ESM rescue fund. Such a program is a pre-condition for ECB bond buys
under the plan announced last Thursday by ECB President Mario Draghi. In
the case of non-compliance, Asmussen said, the central bank could even
sell the bonds it had purchased.

“There are two reasons to finish the bond buying: first the
objectives are achieved, or second there is non-compliance by a country
concerned,” Asmussen said, reiterating what Draghi already has said.
“You can question if this is credible or not (but) I think it’s maybe a
wise idea to bind your own hands by pre-announcing what the conditions

Asked if this included selling OMT bonds again, Asmussen pointed to
the ECB’s treaty articles: “We can be active on financial markets by
buying and selling securities.” He said ECB President Mario Draghi had
“purposely” referred to the same article in his unveiling of the OMT
program Thursday.

Asmussen also stressed that the decision to give up senior creditor
status “only related to OMT” and not its predecessor, the Securities
Market Program, though he left some wiggle room on the latter by noting
that “on legal grounds we have no preferred creditor status.”

Asmussen reiterated that a decision to conduct OMT purchases would
be based “purely on monetary policy reasons” and the interventions would
be based on a “range of indicators.”

Yet asked whether the OMT program and its conditionality clashed
with the ECB’s price stability mandate and independence, Asmussen said
these were the “consensus before the crisis” and had since become too

It is “no longer enough to limit [the ECB] to these two” concerns,
he said. “They are still key and very important. The construction of the
OMT very carefully tries to strike a balance on various fronts.”

Asmussen said the ECB has “an important but at the same time a
limited role” in the crisis. He acknowledged the OMT is a delicate
balance of “different tensions here between independence and
conditionality, democratic accountability.”

Asked about Greek Prime Minister Antonis Samaras’ visit to the ECB
earlier Tuesday, Asmussen stressed that Greece had taken “important
steps” but that more needed to be done. The sides did not discuss the
possibility of a debt restructuring.

Noting that a Troika team was on the ground in Greece to evaluate
Greece’s progress, he said: “it’s key that they make all efforts to
bring the program back on track.”

In his speech earlier in the evening, Asmussen said the ECB’s
mandate is adequate and should not be questioned, but policies outside
the ECB’s remit must also be strengthened to deal with the Eurozone

“Our mandate is clear, it is comprehensive, it is adequate and it
should not be questioned,” Asmussen said.

But “clearly, central banks should not be overburdened,” Asmussen
added. “Structural problems require a structural response. These
deficits need to be addressed by reinforcing the available policy
instruments outside the purview of the central bank.”

— Frankfurt bureau: +49 69 720 142; email: ccermak@mni-news.com

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