More ECB Non-Standard Policy Not in Cards for Now, Coeure Says

A euro sign sculpture stands outside the European Central Bank's (ECB) headquarters in Frankfurt. Photographer: Hannelore Foerster/Bloomberg

The European Central Bank sees no immediate need for further non-standard measures to support the economy or counter the debt crisis, executive board member Benoit Coeure said.

“The view of the governing council is that we don’t need additional non-standard measures at the current juncture,” Coeure said when asked if the ECB may implement quantitative easing. “It’s not on the table at the current juncture,” he said in an interview in Aix-en-Provence, France on July 6.

The Frankfurt-based central bank’s decision on July 5 to lower interest rates -- including cutting the rate it pays on overnight deposits to zero -- fueled speculation it may eventually be forced to follow the U.S. Federal Reserve and the Bank of England with large-scale asset purchases known as quantitative easing. After the decision, ECB President Mario Draghi said the cut may have only a “muted” economic impact.

Coeure said that lowering the deposit rate into the negative is a “theoretical” possibility, though it also isn’t a move that the ECB needs to make right now.

“Some central banks have done that,” he said, citing the Danish central bank. “I don’t think this is appropriate for the ECB at the current juncture. It’s a theoretical possibility.”

The ECB’s rate cuts came within 45 minutes of China lowering borrowing costs and the Bank of England restarting its asset purchases, adding to a new round of global monetary stimulus. With Europe’s debt crisis curbing growth across the continent and damping the outlook for the world economy, the ECB was under pressure to ease policy even though Draghi last month voiced misgivings about the effectiveness of a rate reduction.

Rising Yields

Coeure said purchases of Italian and Spanish government debt may be considered if monetary policy requires it.

The additional yield investors demand to hold Spanish 10-year bonds rather than benchmark German bunds rose to 563 basis points on July 6 from 486 basis points on July 2. Spain’s 10-year yield rose 62 basis points in the week that ended July 6, the most since the five days through June 15, to 6.95 percent. It reached 7.04 percent on the day, the highest since June 20.

Italy’s comparable debt yielded about 6.03 percent.

Italian Prime Minister Mario Monti said yesterday that the current level of yield spreads on European sovereign debt remains a concern and that the Euro Group of finance ministers should act to counter them.

“This is an issue that the European Council has underlined as one to be addressed when it met in Brussels,” Monti told journalists at Aix-en-Provence, France. “It was decided that the Euro Group should work on this.”

On July 7, Spanish Prime Minister Mariano Rajoy said euro-zone countries must urgently implement decisions including government bond purchases agreed to in June as the country can’t finance its deficit under current conditions.

ECB Purchases

The region’s finance ministers gather today in Brussels for a regular monthly meeting.

“If the governments decide to do it they should go ahead,” Coeure told a meeting of the Circle of Economists. “That doesn’t mean the ECB can’t buy Italian and Spanish debt on the market, but they’ll do it if it needs to for reasons of monetary policy and not otherwise.”

Asked why the ECB won’t finance the European Stability Mechanism, he said providing unlimited financing for the bailout fund to support government borrowing would contravene the treaty agreements that it works under.

While the ECB “may have the right to lend to the European Stability Mechanism to create bridge financing,” using the money for “buying government bonds in an unlimited manner is clearly non-compliant with the treaty,” he said.

Coeure said the current priority must be for European governments to implement the decisions made by their leaders at a meeting in Brussels.

Euro-region finance ministers will aim to enact the June 29 agreement at a meeting today, European Union President Herman Van Rompuy has said.

“It will take time for the decisions taken by European leaders to be fully understood by markets and they have to be implemented,” Coeure said. “For me, the priority is for the decisions to be taken by European leaders to be quickly implemented.”

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