LONDON (MNI) – The European Central Bank will take more steps to
enhance market liquidity if it needs to do so but at present it does not
believe it is required, Executive Board member Jose Manuel
Gonzalez-Paramo said.

Speaking to reporters here Paramo said “If we need to do more we
will” adding “this is not our assessment at this point.”

At the moment the market is “awash with liquidity”, he said.

The real problem according to the ECB official is “segmentation”
with many banks preferring to make deposits overnight with the central
bank rather than lend to other banks.

Gonzalez-Paramo stressed once again that “the ECB is not in charge
of managing the euro area” and he called on governments to fulfil the
political commitments they have made.

The new governments in Greece, Italy and Spain should “front-load”
the necessary structural reforms and fiscal consolidation, he said.

In response to a question on whether the ECB was just muddling
through rather than seeking a big solution Paramo said “There are some
calls in the market for that.”

“We don’t have a mandate for the big solution,” he continued.

He highlighted the danger that a lender of last resort solution, or
course of quantitative easing, would distort the incentives for
governments to put their economies and public finances in order.

On the looming December Governing Council meeting Paramo refused to
be drawn on whether the central bank is leaning towards a further cut in
its key rate.

“We always do what is necessary without any constraints,” he said.

“Every month we take the decision and asses the situation,” he
added, noting that the December decision would be taken in the context
of new quarterly ECB staff projections for growth and inflation.

In response to the poor German bund sale of Nov 23, Paramo said
there had been “several elements to what happened.”

Traditionally, he noted, the Bundesbank would take a portion of any
bund sale. This time it had just done larger, blaming more widespread
illiquidity in the market and the looming year end, he said.

Asked whether there was any chance he would join the new Spanish
government as finance minister, Paramo said that he would respect his
commitment to serving out his ECB Executive Board term, which expires
May 31, 2012.

–London newsroom: 4420 7862 7492 e:mail dthomas@marketnews.com
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