Published October 12, 2012
TOKYO – The European Central Bank could start its bond-buying scheme to help Spain as soon as Madrid signs a deal with the euro zone's ESM bailout fund, without waiting for any ESM money actually being disbursed, ECB board member Benoit Coeure said on Friday.
Coeure said the ECB stood ready to fire its "bazooka" of unlimited government bond purchases as soon as Madrid signed a memorandum of understanding with the European Stability Mechanism -- the 500 billion euro permanent bailout fund.
"What the ECB will look for will be an assistance program by the EFSF or the ESM for precautionary assistance with a possibility of primary market purchases," Coeure told Reuters in an interview.
"It can be a precautionary program and we we'll not wait until money is being disbursed to start the OMTs," Coeure said.
"So we need a precautionary program to be approved with an memorandum of understanding between the country in question and the Eurogroup."
The condition, however, was that the International Monetary Fund would be involved in monitoring if Spain was sticking to the terms of the agreement and meeting all the conditions.
There is a sense among many euro zone policymakers that Spain should ask for assistance sooner rather than later to avoid a build-up of market pressures that could make it harder to meet its fiscal consolidation and structural reform targets.
Turning to another euro zone problem spot, Greece, Coeure said that while giving Athens two more years to achieve its primary budget surplus, originally set for 2014, could help, it would also require extra funding.
"Any way that will be chosen by the European authorities to make adjustments in Greece that would be more effective and more likely to succeed would be welcome," he said.
"That said, let me be clear that if more time is given to Greece, more money will be needed and this would not be the role of the ECB to provide this money, because the ECB is not in the business of financing governments."
International lenders and Greece are negotiating the terms on which they will resume an emergency lending program for Athens after two general elections in May and June delayed agreed structural and fiscal reforms on which loans were based.
EUROPE NO LONGER THE SOLE CONCERN
speaking on the sidelines of the semi-annual meetings of the IMF and World Bank in Tokyo, Coure said there has been a shift in the way global policymakers perceived risks posed to the world economy.
During the IMF's pring meetings six months ago the euro zone's struggle with its three-year old sovereign debt crisis was in the centre of attention. Now there was acknowledgement of progress made by the European authorities and recognition that there were also other sources of concern.
"The discussions on tail risks in the global economy do not focus entirely on Europe anymore," Coeure said.
"That is good news for Europe and this is recognition that a lot has been done towards building a more consistent framework to address euro area issues. But there remain a lot of uncertainties outside Europe: in Asia, in the United States."
"So this is (also) a sobering message for the euro area: we have to solve our problems and we cannot count on very high growth rates for the global economy."
Responding to the IMF's suggestion that the ECB had room to bring interest rates lower to help flagging growth in the single currency area, Coeure said that the ECB saw no need for rate cuts now and was more concerned with making sure that the already low rates are reflected in lower lending rates across the whole of the 17-nation currency bloc.
"The judgment of the ECB governing council recently has been that a further rate cut would not be needed. In particular, but not only, in the light of inflation developments," he said.
"It remains an option of course, but the sense has been recently that it was not a priority, our priority has been to address impaired transmission channels of monetary policy in particularly thorough outright monetary transactions(OMTs)."
(Additional reporting by Julien Toyer)