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France’s Coeure Says ECB May Have to Step Up Bond Buying

Benoit Coeure
Benoit Coeure, France’s candidate for a seat on the European Central Bank’s executive board, put the spotlight on its crisis-fighting powers by saying the ECB might have to buy more sovereign bonds. Photographer: Jean-Claude Coutausse/Bloomberg

Benoit Coeure, France’s candidate for a seat on the European Central Bank’s Executive Board, put the spotlight on its crisis-fighting powers by saying the ECB might have to buy more sovereign bonds.

Coeure said any bigger ECB bond-buying program, which economists including Royal Bank of Scotland Plc’s Jacques Cailloux and Marchel Alexandrovich of Jefferies International say is needed to help save the euro, would continue to be aimed at ensuring monetary policy isn’t skewed by the region’s debt troubles. The ECB would decide “independently” on any such secondary-market step, he said.

“If we feel there is a deterioration in terms of the transmission of monetary policy, then we should do more,” Coeure told a European Parliament hearing yesterday in Strasbourg, France. “The ECB certainly has to keep its eyes peeled” for market developments and “should be ready to adapt.”

Coeure’s first public remarks on monetary policy since being nominated for the job reopen a debate about central-bank powers that the French government has sought to expand over German resistance. The ECB itself has also resisted a bigger role in the euro-area debt crisis, saying governments must tackle excessive spending and deepen budget-policy coordination.

Closer Union

Euro-area leaders agreed last week on a blueprint for a tighter coordination of fiscal policy, seeking to prevent Spain and Italy from being engulfed by troubles that forced Greece to seek an initial rescue in April 2010, pushed Ireland and Portugal into aid programs over the ensuing year and led to a second Greek bailout in late October.

To help curb borrowing costs of distressed euro-area governments, the ECB has bought 207.5 billion euros ($274 billion) worth of debt on the secondary market in the past 19 months.

“This policy has had a positive impact on markets,” Coeure told the 27-nation Parliament’s economic and monetary affairs committee. “It allowed us to curb gaps that were growing and it allowed us to protect the value of certain bonds held within the banking system. So this policy has been an efficient policy.”

Pragmatic Approach

Coeure, the French Treasury’s No. 2 official and chief economist, would fill the seat being vacated by Italy’s Lorenzo Bini Smaghi on Jan. 1. France supported Italian Mario Draghi’s successful bid to take over from Jean-Claude Trichet as ECB president on the condition Bini Smaghi step down early to make way for a Frenchman in the ECB’s six-member executive.

On Dec. 9, after euro-area governments reached their fiscal-union accord in an all-night negotiating session, Draghi called the deal “a very good outcome for euro-area members” without revealing whether the ECB would increase intervention on the secondary market for sovereign bonds. Coeure signaled any such step would depend on market developments.

“We have to be pragmatic in this area and do what is necessary given what is happening on the markets,” he said.

Coeure’s position fits with the direction already set out by Draghi. Jefferies’s Alexandrovich said the ECB has left the door open to bigger bond purchases if they are necessary for monetary policy, particularly if interest rates fall further. The ECB cut its benchmark lending rate last week by 25 basis points to 1 percent.

‘Evolving’ Position

“The ECB’s position is most definitely evolving,” Alexandrovich said in a note to clients. “The ECB will continue to rule out more aggressive bond purchases until these become necessary and then the ECB will simply start buying at a faster rate.”

Coeure, who has previously run France’s debt-management office, ruled out any ECB talks with governments on the matter.

“You can’t have a decision that would be coordinated together with the governments because this is monetary policy,” he said. “The decision would be taken by the ECB and the ECB alone.”

Any increase in bond buying by the ECB would also have to fit with its primary goal of ensuring price stability, said Coeure. His bid to join the ECB board was endorsed yesterday by the Parliament’s economic and monetary affairs committee, setting the stage for a vote by the full European Union assembly tomorrow.

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