FRANKFURT (MNI) – The announcement of the European Central Bank’s
OMT bond-buying program should help change market perceptions that a
break up of the euro is a possible scenario, ECB Executive Board member
Joerg Asmussen said Friday.

However, Eurozone members also need to reduce their debt burdens,
which are still high, Asmussen said.

Asmussen said the Outright Monetary Transactions program would ease
investor fears of “destructive scenarios that could lead to a default
or, in the extreme, exit from the euro.” Such fears are prompting some
counties to pay higher yields “that are not fully justified by
underlying fundamentals, making those destructive scenarios
self-fulfilling,” he said.

“But this aspect of debt sustainability can be addressed by simply
changing perceptions. Here, the ECB’s recent announcement of Outright
Monetary Transactions should play a supportive role. It provides a
credible backstop for tail risks and confirms that the euro is
irreversible,” Asmussen said in prepared remarks to a panel in Tokyo on
the sidelines of the IMF’s annual meetings there.

But the German member of the ECB’s board said investor concerns
were also being fed by worry about debt levels that are “too high” or
still rising. “This is more complex to deal with. Inflating away the
debt burden is not an option in the euro area. So Member States have to
take policy actions to redress public finances. But the evidence
suggests it can be done,” he added.

Asmussen said fiscal consolidation efforts were already “well
underway,” and that structural reforms are also needed to improve growth
and back up the consolidation efforts.

“To support this [consolidation] process, it is urgent to improve
euro area growth rates, which are projected to remain low for a number
of years. This can be done by unlocking the many rigidities that still
exist in euro area product and labour markets,” he said.

On Greece, Asmussen said much has already been done by the
government in Athens to reduce its deficits, but “a lot still remains to
be done.” He stressed that Greece’s reform efforts would be more
successful from within the Eurozone than from the outside.

“The Greek authorities have to demonstrate that they can continue
to stick to their commitments. We are seeing encouraging signs that the
fiscal targets for next year can be met. This is the best way out of its
crisis: for Greece to reform within the euro area,” Asmussen said.

Asmussen also said EU leaders need to complete broader governance
reforms, improve incentives for structural reforms and complete
financial market union, including “an integrated framework for bank

Europe also needs to complete the single market: “It does not serve
citizens to protect local monopolies that lead to high prices and low
quality. Europe has some of the world’s most sophisticated and
innovative companies, and they should be operating on a European scale.”

— Frankfurt bureau: +49 69 720 142; email:

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