Eurozone governments should not expect unconditional support under the European Central Bank’s (ECB) new tool to prevent borrowing costs from rising too high for the most indebted countries, two ECB officials said on Tuesday.
The ECB has pledged further action to prevent financial “fragmentation” between the eurozone’s most indebted countries, such as Italy, and safe Germany, after a sudden sharp rise in bond yield spreads.
But Slovak central bank governor Peter Kazimir and his Finnish counterpart Olli Rehn have set strict conditions for any ECB intervention in the bond market.
Kazimir said it was not just the ECB’s job to limit spreads, which are also caused by the economic fragility of certain countries and the eurozone’s incomplete architecture as a monetary union without fiscal barriers.
“When we talk about fragmentation, we are often knocking on the wrong door, and the key and substantial issue is that countries’ economies should modernize, innovate, be more resilient to these problems,” he told reporters in Bratislava.
Rehn said no country will automatically be eligible to benefit from the ECB’s upcoming tool aimed at limiting spread widening — a possible reference to conditions attached to any ECB purchase of a country’s debt.
Sources told Reuters last week that the ECB is likely to set some conditions in the scheme, such as compliance with the European Commission’s economic recommendations.
“For me it is very clear that there is no automatism and that there is not a single reference,” Rehn said at a press conference in Helsinki.
“There has to be a lot of room for judgment practiced by the Governing Council.”
The ECB unveiled plans to devise this new tool last week but did not provide any details and comments from the monetary authorities since then highlight that there is still no agreement on how it should look like.
Source: CNN Brasil
