Praet Says ECB Must Not Be Lender of Last Resort to Governments

European Central Bank Executive Board member Peter Praet said the ECB must not become a lender of last resort for governments.

Funding illiquid sovereigns “either via direct interventions on the primary market or by extending direct credit lines” is “not legally within the reach of the ECB, since the Treaty clearly imposes the prohibition of monetary financing,” Praet said in a speech in Geneva, Switzerland, today. “There must not be any circumvention to this prohibition.”

Euro-area finance ministers are meeting in Brussels today to weigh the terms of new loans to Greece to help it avoid default.

“The sovereign debt crisis has shown that sound public finances are all the more important in a monetary union where a large number of independent fiscal policy-makers share the benefits of a single currency, gaining access to a large pool of savings and being immunized against exchange-rate risk,” Praet said.

Recent governance reforms are “encouraging,” Praet said. “It is of utmost importance, that the rules are now fully implemented,” he added.

To contact the reporters on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net; Simone Meier in Geneva at smeier@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net