FRANKFURT (MNI) – Eurozone banks must not become entirely addicted
to European Central Bank funding, ECB Executive Board member Lorenzo
Bini Smaghi said in an interview with The Australian Financial review
released on Tuesday.
Asked whether the ECB might consider making a pledge to supply
unlimited liquidity for an indefinite period, Bini Smaghi said: “These
unconditional commitments are not credible, and they have to be
credible, so I think it is better to give a time-horizon.”
He added: “Banks have to equip themselves for the possibility to
finance themselves not only with the ECB but also with the markets. So
at a certain point we have to avoid the banks becoming fully addicted to
central bank financing.”
In the face of rising interbank market tensions, other ECB
Governing Council members have recently hinted that the ECB may
re-introduce a 1-year tender to help ensure banks have adequate
liquidity.
Bini Smaghi acknowledged the tense environment surrounding Greece
was having a “huge contagion” effect on other Euroozone countries, the
banking sector and equity markets.
He issed a stark warning against a default by Greece, saying it
would be “suicide” and would have serious Europe-wide repercussions. The
impact on the real economy, “especially on the country itself, would be
quite dramatic,” he said.
He recognized that the Greeks have taken a lot of “very tough”
measures, but he said that they did so too late and are still suffering
a credibility gap. So, “they have to take more [measures] now.”
Bini Smaghi also denied that rising sovereign bond yields meant the
ECB’s bond purchasing program has failed. The rise in yields “reflects
the market pricing of sovereign risk. Nobody thinks the markets are
perfect and we cannot, just with our action, make them perfect,” he
said. However, “I think our program helps the markets to find an
equilibrium.”
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–Frankfurt bureau; +49-69-720142; jtreeck@marketnews.com
[TOPICS: M$$EC$,M$X$$$,MT$$$$,MGX$$$,M$$CR$]
