The European Central Bank can stop the region’s sovereign debt crisis “almost immediately” by carrying out a “massive” round of government-bond purchases, said Guillermo Ortiz, the chairman of Grupo Financiero Banorte SAB and Mexico’s former central bank governor.
“The European Central Bank has done quite a bit,” Ortiz said today in an interview in Los Cabos, Mexico, where he was attending the business summit of the Group of 20 nations. “The problem is it needs to do more.”
The ECB halted its bond-buying program, known as the Securities Markets Programme, in February after absorbing about 212 billion euros ($267 billion) since it began purchases in May 2010. Ortiz said the ECB may discuss new bond purchases at the European Union summit on June 28 and June 29, adding that he didn’t expect a decisive step to solve the crisis at the G-20 leaders meeting that starts today.
“The ECB can stop this almost immediately, activating a massive sovereign debt purchase program,” said Ortiz, who presided over Mexico’s monetary policy from 1998 through 2009.
Greece’s election over the weekend didn’t have much impact on the markets today because there’s no clarity on the outlook for Spain’s banking system and investors are concerned borrowing costs will keep climbing in Italy, the 63-year-old Ortiz said.
The best solution is central bank bond purchases, he said.
“The Fed has done it, the Bank of England has done it, the Bank of Japan has done it,” Ortiz said. “The ECB has been much less active than the other central banks.”
EU leaders will pledge “to mobilize all levers and instruments” to ensure financial stability and tackle the sovereign-debt crisis, according to draft conclusions prepared for the summit in Brussels later this month.
The 27-nation bloc should “rapidly examine” EU proposals on bank capital requirements, deposit-guarantee programs and how to handle cross-border bank failures, according to the draft conclusions dated June 15 and obtained by Bloomberg News.
European Central Bank Governing Council member Ewald Nowotny said May 29 that the bank isn’t considering restarting its bond-purchase program to stem rising borrowing costs for governments in the euro area.
Ortiz said he expects only the “usual phrases of commitment” from Europe and possibly more resources pledged to the International Monetary Fund at the G-20 meeting.