–Adds details on bond buying, rating agencies, fiscal reform
VALENCIA, Spain (MNI) – The European Central Bank will announce
next week how it intends to sterilize the bond purchases it has been
conducting since Monday, ECB Executive Board member Jose Manuel Gonzalez
Paramo said Thursday afternoon.
Speaking to reporters after a public appearance at a conference in
this Mediterranean coastal city, Gonzalez Paramo was asked for details
about the volume of bonds the ECB would buy and precisely how it planned
to drain the liquidity that was created by purchasing them. He said the
ECB would not be giving details of how much debt it would buy, but that
plans for sterilizing the purchases would be announced next week.
Earlier, addressing the audience, Paramo promised that the bond
buying program “will be sterilized” and that the ECB “remains committed
to price stability.” The liquidity injected through the purchases “will
be withdrawn via auctions,” he said — presumably meaning reverse repo
transactions, though he didn’t specify.
Gonzalez Paramo added that, “the current circumstances required
non-conventional measures,” and that they are “aimed at restoring the
system of monetary policy transmission.”
The ECB, in the early hours of Monday morning — following a week
of extreme turbulence in financial markets that had taken on global
overtones and spread to equities Friday — announced it had made the
extremely controversial decision to purchase sovereign and private debt
securities in the secondary market.
Paramo said the decision was taken by a “significant majority” of
the ECB’s Governing Council member. “The Council is a collegial body,
and the decision was taken collegially,” he said.
Council member Axel Weber, president of the Bundesbank, made clear
earlier in the week that he was one of the dissenters. Weber said he was
“critical” of the bond buying plan despite the extreme circumstances.
Paramo said that internationally coordination “has been very
positive” in the face of the most recent crisis to hit financial
markets. On Monday, most of the world’s major central banks announced
they were once again entering into U.S. dollar swap agreements with the
Federal Reserve and would reactivate dollar liquidity operations.
Paramo was also asked how the emergence of a two-speed European
economy, with Germany and other more developed countries recovering more
quickly than the troubled peripheral countries, would affect the ECB’s
monetary policy. He replied that it was not up to monetary policy to
accommodate such divergences; rather, it is up to each individual EMU
state to implement the kind of policy reforms needed to catch up.
In the conference moments earlier, Paramo criticized rating
agencies, saying “they have not always contributed positively and in
some cases the ratings have been counterproductive.”
But some of the blame belongs with those who have relied too much
on the ratings, including — he implied by using the first-person plural
form — the ECB itself. “The weight given to rating agencies has been
excessive,” he said.
Paramo said the answer wasn’t to do away with rating agencies
altogether, but rather to “demand guarantees that there are no conflicts
of interest.” He said Europe is on the way to ensuring that rating
agencies assume responsibility for the ratings they issue.
Paramo also weighed in on the measures proposed Wednesday by the
European Commission to tighten collective oversight of national fiscal
policies at the EU level, including synchronization of budget timing and
examination of individual government budgets by the Commission. The
steps, if approved, would constitute a huge step towards greater EU
economic governance.
“There is room to increase the efficiency and credibility of
multi-lateral fiscal vigilance,” Paramo said. “It is necessary to
reinforce the Stability Pact.”
He added that, “cases like the Greek statistical cannot be
repeated.”
Fiscal discipline, labor market reform and enhancing
competitiveness are “essential,” he said.
[TOPICS: M$$EC$,M$X$$$,MGX$$$,M$$CR$,MT$$$$]
