ECB Ready to Act Quickly with Aid for Countries in Need
August 10th, 2012
Since Mario Draghi stated his willingness to act to preserve the euro, the mandate of the institution he presides over is clear. This week, two members of the ECB Governing Council have stressed that the central bank is prepared to take action quickly and decisively. Of course, countries cannot forget that they must first apply for the rescue, and that the help will come hand-in-hand with strict conditions.
In line with the statements made on Tuesday by Ardo Hansson, Chairman of Estonia’s central bank, yesterday his French counterpart, Christian Noyer, said that the European Central Bank is determined, with strong measures, to bring to heel the risk premiums of the eurozone members – in reference to Spain and Italy – which have been at excessive levels for weeks.
“Our operations will be large enough to have a strong impact on markets. We must be prepared to intervene quickly, giving priority to the debt market in the short term,” Noyer said in an interview with Le Point, referring to the program for the purchase of Sovereign bonds, already put forward by Draghi at the end of the last monthly meeting of the ECB.
However, Noyer insisted that the banking supervisor can not replace the political responsibility of the respective countries, and that they need to move forward with the reforms in order to reduce their deficit and debt levels, as well as strengthen their competitiveness.
According to El Economista, this approach, which Mario Draghi has already pointed out is essential in order for the ECB to start its aid program, is introduced clearly in the monthly bulletin published yesterday. It indicates that governments “should be prepared to activate” the European Stability Mechanism (MEDE) and the European Financial Stability Fund (EFSF) if there are “exceptional circumstances in financial markets and risks for the financial stability”.
In the case that these mechanisms are triggered, they will be linked to “strict and effective conditions” under the established guidelines. In this regard, the report adds that the policy makers need to move forward with “great determination” in the consolidation of public finances and the “much-needed” structural reforms, as well as with fiscal consolidation efforts and measures to restore the functioning of the financial system.
The euro is irreversible
The European Central Bank insists that the euro is “irreversible” and said that the elevated levels of risk premiums in some countries related to “fears over the reversibility of the euro are unacceptable and must be tackled in a decisive manner.”
As a result, “the Governing Council could consider adopting new unconventional monetary policy measures consistent with the need to repair the transmission of monetary policy”. The monetary institution indicates that appropriate modalities for such measures shall be determined in the next few weeks.
In addition, the ECB notes in their report that “economic growth in the eurozone remains weak, in a context in which the tensions in financial markets and increased uncertainty hinders the trust and the economic climate.”
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