–Adds Comments On Monetizing, Sterilizing Debt
AMSTERDAM (MNI) – The European Central Bank is committed to
restoring the proper transmission of its monetary policy decisions to
all Eurozone countries, ECB Vice-President Vitor Constancio said Friday.
“It is essential to…restore the proper transmission mechanism of
monetary policy,” Constancio said in a speech here, a day after ECB
President Mario Draghi presented the details of the central bank’s new
bond buying program.
“This does not imply that we should eliminate or artificially
reduce the spreads of debt instruments across countries that are
justified by pure credit risk,” Constancio said. “However it is
certainly within the remit of monetary policy to intervene to mitigate
risk premia that are related to fears of a break-up of the euro area
and have been identified in several analysis,” he added.
Constancio reiterated that the program, called Outright Monetary
Transactions (OMT), will require countries to request the aid and to
abide by the conditions attached to it. “A necessary condition for OMT
is strict and effective conditionality attached to an appropriate
European Financial Stability Facility/European Stability Mechanism
programme,” Constancio said.
During a Q&A session, Constancio stressed that there was nothing
automatic about the program and that the ECB could withdraw its support
at any time should a government did not stick to its agreed conditions.
He also rejected the idea that the bond buying amounted to monetary
financing of governments and said that the central bank would have no
trouble in sterilizing its bond purchases.
Adopting a phrase used by Draghi on Thursday, Constancio, who was
speaking at the Duisenberg School of Finance, said he hoped the new
program would help eliminate the “the tail risk linked with a break-up
fear that has been pervasive in the aggravation of the sovereign debt
The creation of a banking union as quickly as possible is also
crucial to the proper transmission of monetary policy, Constancio said.
“I regard as normal that the ECB will be given, according to the
European Summit decisions, a major role in the supervisory framework,”
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