FRANKFURT (MNI) – An enlargement of the E440 billion European
Financial Stability Facility could help counter tensions in sovereign
debt markets, European Central Bank Vice-President Vitor Constancio said
Thursday, though he stopped short of recommending outright the injection
of more money.

“It is true if that size would be increased it would be helpful for
the problem of the sovereign debt crisis,” Constancio responded when
asked whether the risks outlined in the ECB’s Financial Stability Review
warranted a larger fund. Constancio was speaking to reporters at
conference where he presented the Review.

However, he did not press governments any further. “I do not want
to express a view on whether I would recommend it or not recommend it,”
the Constancio said.

The decision on whether to pool some future Eurozone debt into a
common Eurobond is also one that political leaders have to take,
Constancio said.

“There is no expressed view by the Governing Council. It is of
course something mainly to be discussed by the government of the member
states,” he said.

Constancio said that decisions the central bank has taken on
liquidity provisions thus far were “adequate responses to the
development of the situation itself.”

“We have adjusted to the situation and we will continue to so,” he
said.

He observed that there has been a “significant degree of
normalization” in money markets and added that he expects overall
liquidity in the system to subside further with the expiry of the last
1-year tender later this month.

Nevertheless, he said, “we see a shift from interbank markets to
the secure segment of the money markets…being much more used than
before.”

“That is I think a structural change that will not change,”
Constancio said. “It has largely occurred in a more significant way in
the U.S. and is now occurring in Europe.”

Asked why the ECB had not published expected writedowns for
Eurozone banks as in previous reports, Constancio said that the central
bank had stopped the exercise of publicly forecasting writedowns because
the situation had become less acute. However, in any future bank stress
tests such figures may well be included, he said.

Constancio also said he was not aware of any particular reason why
today’s Financial Stability Review does not include a breakdown of
collateral that banks have parked with the ECB. “There was no change of
policy regarding the type of collateral,” he said.

–Frankfurt newsroom +49 69 72 01 42; e-mail: jtreeck@marketnews.com

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