ECB Asmussen: To Use Monpol, Nonstandard Tools If Needed: WSJ

Author: Market News International | Category: News

PARIS (MNI) – The European Central Bank stands ready to use both
its traditional monetary policy and non-standard measures if and when
the need arises, ECB Executive Board Member Joerg Asmussen said in an
interview with the Wall Street Journal published Sunday night on the
newspaper’s website.

Asked if the ECB might consider launching another LTRO or
re-opening its bond purchasing program to confront a new eruption of the
Eurozone debt crisis, Asmussen replied: “We have a whole range of
standard and nonstandard measures with us, and we will use them if and
when the need arises to fulfill our mandate.”

He added: “This does not mean (we) pre-commit to anything.”

The ECB board’s German member appeared to suggest — like his
colleague Benoit Coeure did last week — that the ECB could still use
its bond purchasing program (SMP), despite its recent dormancy, to
prevent sovereign yields in countries like Spain and Italy from rising
too far.

Asked whether he considered the SMP to have been a success, he
replied: “I just want to repeat what my fellow Executive Board member
Benoit Coeure said. (SMP) exists. No more, no less.”

The comment is of interest, because Coeure’s comment last week,
specifically in response to a question about whether the ECB might
intervene to help Spain, caused quite a stir in financial markets and
sparked speculation of an imminent ECB move. Asmussen surely knew of the
market’s reaction to the comment when Coeure made it, though his added
phrase, “no more, no less,” may have been intended to dilute its impact.

Financial markets, skeptical that Spain can achieve its goal of
cutting the public deficit by 5.5% of GDP by the end of 2013 in the face
of a grinding recession and 24% unemployment, have punished Spanish
bonds in recent weeks. After dropping back below 5% this year, the yield
on 10-year Spanish paper pierced 6% late last week, a level considered
unsustainable by many analysts.

While making clear the ECB stands at the ready, Asmussen stressed
that it is up to national governments to implement the measures required
to attack the crisis at its roots. “I also want to make it clear that
any kind of central bank action is not a substitute for fiscal
consolidation, growth-enhancing structural reforms and cleaning up
banking sectors in some member states of the Eurozone,” he said. “The
ball is with governments; they have to act.”

Asmussen said that “the worst of the crisis seems to be over,” even
though “the crisis of public and private debt in some euro area
countries is clearly not over.”

“What we see — if you leave aside the last five or six days in the
developments in Spanish markets — is stabilization in financial
markets. The catastrophic scenarios around the time of the G20 Summit
last November did not materialize,” said. He attributed this to actions
“at various levels,” including the ECB’s E1 trillion in cheap 3-year
loans; the recent increase in the Eurozone’s firewall; the completion of
Greece’s debt swap and reduction deal with private creditors; and
measures implemented by national governments including Spain and Italy.

“This, taken altogether, calmed markets, but the problems are not
solved and one needs to continue on this for quite some time,” Asmussen
cautioned.

Asked to explain why Europe is a safe place for investors, Asmussen
focused on the Greek debt restructuring, commonly known as PSI. “Our
view very clearly is that the Greek PSI is a unique and exceptional
exercise and we are not going to repeat this,” he said. “This should be
clear to investors around the globe.”

With regard to the recent runup of yields on Spain’s sovereign
debt, Asmussen noted that “markets can overshoot.” He added that, “Spain
since the beginning of the year has started to do significant things.
They adopted a bold labor-market package that was missing for 20 years.
They have taken the first steps on the banking side. On the fiscal side
the communication could have been better. They have lost a bit of market
confidence and are on their way to repair this.”

Asmussen said Europe has “done its part” with the recent decision
to grant the permanent bailout fund, ESM, E500 billion in new funding
capacity up front. The Eurozone also has committed an additional E150
billion in funding to the IMF, he noted. “So now you would expect other
IMF shareholders to come forward and make their contributions to
increasing IMF resources,” he argued. “This should be done at the Spring
meetings.”

Asked whether the Eurozone should increase the size of its firewall
even further, Asmussen said, “it’s not useful to reopen this debate
again and again.”

In the face of upcoming elections in Greece and France — both on
May 6 — Asmussen said, “I would expect that governments stick to the
promises that were made even by previous governments.”

In Greece, he said, whoever forms the next government should take
“full ownership of the program to create as broad a political consensus
as possible,” he said. On France, he said: “We all have an interest in a
strong French economy, and I would also expect here that they keep the
promises they have made under the Stability and Growth Pact, meaning
reaching a nominal deficit that is under 3% of gross domestic product
next year.”

Asmussen denied that austerity was the wrong way to go for Europe.
“One has to ask: what is the alternative?” he said. “The suggested
alternative of fighting low economic growth with yet more debt is simply
an illusion.”

The ECB board member also seemed to show a flash of frustration
with the burden that has been put on the central bank to maintain
financial stability in the Eurozone.

“The ECB was at some moments of the crisis the only institution
that could act. But should it stay like this? Clearly not,” he argued.
That’s why the design of the ESM is so important. One has to design the
institutional feature of the E.U. or euro zone to be able to act.”

He added: “I’m always surprised to see when certain bond yields
rise that you get e-mails and research notes that say: ‘these are the
four policy options for the ECB.’ But there are no e-mails going around
that say: ‘these are the four policy options for this or that
government.'”

–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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