PARIS (MNI) – Ongoing market tensions could impact financial
stability and the real economy and can be countered only by attacking
the root of markets’ worries, namely doubts about the sustainability of
public finances in some EMU countries, ECB Governing Council member
Christian Noyer said Monday.

“It is clear” that central bank action and the EU’s fiscal
guarantees “alone will not suffice” to calm markets, Noyer said at the
opening of a conference on “Macroeconomic Policy in a Crisis Period,”
sponsored by the Bank of France, which he heads.

“Therefore, a condition for market tensions to abate is that
budgetary discipline is implemented rigorously,” he said.

The ECB’s public bond purchase program — which was decided “in
full independence and actually preceded Ecofin deliberations” — “cannot
and will not be a substitute for effective and speedy fiscal
consolidation,” he stressed. “The credibility of fiscal commitments is
therefore of paramount importance.”

“The purchases are not meant to change the monetary policy stance,”
Noyer said. “Accordingly, they have been sterilized through weekly
offerings of term deposits, exactly neutralizing their direct impact on
overall bank liquidity.”

Noyer highlighted the success of central banks in fulfilling their
price stability mandate during the crisis, notably in the Eurozone,
where inflation expectations never deviated “significantly” from the
ECB’s definition of price stability. This helped counter a possible risk
of deflation, he said.

The ECB’s previous intervention in debt markets — a E60 billion
program focused on covered bonds — is “now almost completed” and
despite its modest size has been “fairly successful in reviving” this
market segment, he said.

“I would note that during the last month it has been the most
dynamic segment and has usefully supported bank funding at a time when
bond issuance is proving more difficult in an environment of increased
uncertainty,” he said.

–Paris newsroom +331 4271 5540; stephen@marketnews.com

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