-Banking Union Needs Joint Deposit Guarantee, Resolution Scheme

FRANKFURT (MNI) – Additional European Central Bank action in the
form of the recently announced OMT bond buys is cleary necessary, ECB
Governing Council member Patrick Honohan said Tuesday.

“The emergence of redenomination risk in market perceptions and its
disruptive influence have generated undesired and damaging yield
volatility. Additional corrective action, as recently announced, is
clearly necessary,” Honohan said in a speech text prepared for delivery
at the David Hume Institute and the Scottish Institute for Research in
Economics.

The ECB on September 6 announced that it is ready to buy up
government bonds to ensure “the appropriate monetary policy transmission
and the singleness of the monetary policy.”

Since the ECB made prior eurozone bailout support a precondition
for its own interventions and Spain continues to resist asking for aid,
a quick start to the OMT appears unlikely.

“In considering and taking such corrective action, the ECB has not
only to ensure no compromise with its Treaty mandate and obligation to
maintain price stability, but must also avoid the appearance of
partiality, and retain the confidence and respect of the body politic,”
Honohan said.

On the European Banking Union Honohan said that both a common
deposit guarantee regime and a common resolution agency are key –
rejecting calls from some quarters that the union should be limited to a
single supervisory mechanism.

A single supervisory mechanism “is in full active preparation;
draft legislation is expected to be complete by the end of 2012 with an
implementation phase during 2013,” Honohan said.

“The other two (entities) would come later. Much is expected from
these, and I believe that they are very important elements” of the new
Eurozone framework.

Honohan also offered a positive assessment of Ireland, whose
central bank he heads, noting that “after years of apparent fiscal
discipline, has recently been somewhat precariously, but nevertheless
rather effectively, fighting to restore international confidence in its
creditworthiness.”

-Frankfurt newsroom; +49 69 72 01 42; email: jtreeck@mni-news.com

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