FRANKFURT (MNI) – The financial market crisis has reentered an
acute phase that led the European Central Bank to suspend the unwinding
of special measures, Governing Council member Yves Mersch said Friday.

The head of the Luxembourg Central Bank also made clear, in an
interview with the Swiss daily Neue Zuercher Zeitung, that he does not
think much of collectively issued European debt instruments at the
present time.

In the context of the ECB’s program of sovereign debt purchases,
Mersch observed that, “recently the situation in the financial markets
has intensified again. At present we are back in a phase of acute crisis
on the markets.”

He continued: “That is why we have not yet unwound various
temporary special measures as we had actually envisioned.”

The ECB’s purchases of sovereign bonds are “naturally only monetary
policy” rather than intended to reduce the risk premia for the bonds of
individual member states, Mersch asserted. The goal is to maintain the
monetary policy transmission mechanism in Europe, he said.

“We want to prevent there being interest rate distortions in
countries that do not in any way still reflect the monetary policy
interest rate,” he explained. “That does not mean that we would like to
influence the differences among the risk premia.”

The ECB every week withdraws the liquidity it injected, which makes
the program “something completely different” from the quantitative
easing the U.S. monetary authorities are now relying on, he said.

Mersch said that while taking “lively” part in the Council’s
discussion of the somewhat controversial program, he has not
participated in the dissent others have publicly expressed.

Mersch conceded that there is “quite clearly” a phenomenon of banks
dependent on the ECB for liquidity, a solution for which might be
presented in the coming months.

The current discussion of so-called Eurobonds is “problematic” for
various reasons and such instruments are not appropriate at Europe’s
present phase of integration, he said, reiterating arguments he
expressed earlier in the day.

–Frankfurt bureau tel.: +49-69-720142. Email: dbarwick@marketnews.com

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