Paramo Says Spain Has Sold Enough Debt to Gain Room on Bank Aid

European Central Bank Executive Board member Jose Manuel Gonzalez-Paramo comments on monetary policy and the region’s debt crisis.

He made the remarks in an interview in Frankfurt.

On Spanish banking-sector recapitalization:

“I’m far from stating a ranking of measures. Logic tells you, some banks will generate profits and will be able to retain profits. Secondly, you still have some potential for deleveraging in non-core business, and thirdly, the government has front-loaded the issuance program this year so there is some room in case of need for public funds through the FROB, the fund to recapitalize banks. It’s for the government to decide which is the way they should push. Also, having known what is the cap that has to be covered, there is now progress on the external evaluation of the banking-sector needs and these will be known in one month time.”

On the European Stability Mechanism recapitalizing banks:

“We have always favored that the ESM would be able to recapitalize banks directly instead of going through governments. In that way, you maintain a reinforced link between the sovereign and the banking system.”

On Spanish Prime Minister’s request to restart bond purchases:

“We have explained time and again that the Securities Markets Program is a monetary policy instrument that was created at a very special time to tackle disruptions in sovereign bond markets. We are silent on how we use it and when. We know it with a one-week delay when we publish the information.”

“I didn’t imply anything. I said this is a program that has the euro-zone interest in sight. It’s part of the tool box and used in conjunction with all the other monetary policy instruments.”

On new non-standard measures:

“We assess and evaluate in real time what goes on in the markets. Now, non-standard measures are focusing on keeping the financial system, the banking system working so that the monetary-policy transmission mechanism is effective. This means in different situations, we have to use different measures, tailored to the problem at stake. With all this talk about additional” Long Term Refinancing Operations, “we should not forget that the two LTRO’s announced last year were addressed to very specific funding problems in the banking system. And thanks to these two operations, the funding of the banking system in the euro zone is well covered into 2013. So, depending on the issues that the Governing Council would identify, you’ll see either more measures or no measures because the previous ones still have some time to go. They have not had the full effect we’re expecting.”

“The message is, we study in real time and never pre- commit.”

On whether first-quarter gross domestic product reduces downside risks to growth:

“This will have to be seen. You’re talking about data on quarterly GDP. This is a very important element but just one of the elements. You will have information next week on the projections of the Eurosystem and more soft information. It remains to be seen what the judgment of the Governing Council is. Up to this moment, we stick to our view that there are downside risks to the outlook, but on inflation risks remain balanced.”

On the existence of an ECB task force on a Greek exit:

“I don’t comment on rumors.”

On ECB reaction on bank runs in Greece or Spain:

“It has to be clearly spelled out what is meant by deposit run. What I can say is the following: There are preventive measures in order to tackle these things which have to do with the general economic policy environment of the country, which has to be sound and credible. But you also have measures at the level of the financial system in the countries including the deposit insurance. From the point of view of the central bank, we address liquidity problems. We lend to solvent banks against good collateral.”

On ECB challenges going forward:

“The ECB cannot fill the vacuum created by inaction of stakeholders. We will keep reminding the governments in particular of the need to act with the maximum speed they could. We have in place now a clear design of the future of the euro zone. It remains our destiny in common. There’s no question about that. We contribute to the integrity of the currency. We do it, not just by sticking to our mandate, which is having monetary policy that preserves price stability and contributes to financial stability, but also by contributing to the design of a stronger, more stable Europe. We have been very vocal in this. We need more of a financial union and we will contribute as much as possible through the consultations -- how to make resolutions more pan-European, deposit insurance at the level of the euro zone and all these things. We will work in that direction.”

On whether the euro area will have 17 members one year from now:

“I have no doubt. The euro is our destiny in common. And remember, we have a number of countries knocking at the door. You could see an even larger euro in terms of numbers. We will be stronger. Not smaller, not weaker, but stronger.”

On governments’ failure to appoint a successor:

“Institutions should function normally. That’s for the benefit of all. So the sooner they make this appointment, the better. There may be reasons justifying why they couldn’t come to an agreement.”

On whether the appointment delay weighs on ECB credibility:

“I don’t think so. We continue to deliver. We function in a way that the institution can function normally for a few weeks time but it’s certainly not for the benefit of the institutional set-up, going beyond the ECB and such. The sooner they make this appointment, the better.”

To contact the reporter on this story: Jana Randow in Frankfurt at jrandow@bloomberg.net

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

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