The key issues for the euro area are to “restore investor confidence durably” and to break the link between sovereign risk and bank risk, Noyer, who heads the French central bank, told reporters in Paris today. The bond program can only “ease market turbulence temporarily.”
The remarks put the onus of combating record borrowing costs in Spain and Italy on euro-region member states and underline the Frankfurt-based ECB’s refusal to bail out governments even as the debt crisis approaches its third anniversary. Noyer said governments must move quickly to implement a June 29 agreement that set out a plan for united banking supervision and aid to Spanish lenders.
“The crisis management mechanism formally created between member states must urgently be made fully operational,” Noyer said. “It is vital to avoid any further deterioration in sovereign debt market conditions.”
The ECB, which last week cut its benchmark and deposit rates to record lows, is ready to do more to support the economy, though policy is “appropriate” for now, Noyer said.
“As has been the case for the past five years, the Eurosystem stands ready to act within the framework of its mandate and its competencies,” Noyer said. “But in the current circumstances, the effectiveness of its action greatly depends on the decisions concerning the future of the euro area, its governance and its functioning as well as their actual implementation.”
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