–Add Comments On Banks’ Dependency On ECB Liquidity
FRANKFURT (MNI) – Eurozone states cannot inflate away their debt
problems, European Central Bank Executive Board member Lorenzo Bini
Smaghi asserted Thursday.
In remarks not intended to signal upcoming monetary policy, the
central banker warned of the risks of providing unlimited liquidity to
banks over an extended period of time.
Yet, he countered, in remarks prepared for delivery in Bologna,
Italy, changing that policy too quickly is also not desired.
“In the euro area, the public debt problems created by the crisis
cannot be inflated away,” he said. “The Treaty rules it out. The conduct
of the ECB rules it out.”
Bini Smaghi also underscored the ECB’s ongoing concern about banks
that are overly dependent on central bank liquidity: “In some countries
this dependency can affect the entire banking system, whose difficulties
reflect those of the sovereign issuer.”
“To avoid this dependency, we have to create disincentives for
market participants to refinance excessively only from the Eurosystem,
and incentives to return gradually to the market at competitive interest
rates,” he said.
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