ECB to Ensure Lenders Have Enough Liquidity, Visco Says

The European Central Bank will continue to guarantee sufficient liquidity for lenders and keep up the fight against market fragmentation among the 17 countries that share the euro, Bank of Italy Governor Ignazio Visco said.

“The ECB can’t but continue to pursue these objectives,” Visco said today in a speech in Rome at the annual meeting of the Italian Banking Association.

The ECB cut rates to a record low on July 5 on concern the euro area is slipping deeper into a recession. The central bank, headed by Mario Draghi, agreed in June to help nations in distress by acting as a buying agent for sovereign bonds purchased by government-run bailout funds. The rate cut, to 0.75 percent, is an indication of the ECB’s intention to guarantee “adequate monetary conditions” in the euro area, Visco said.

“It followed other measures adopted last month designed to continue to ensure necessary liquidity for the banking system and fight the effects of the fragmentation of monetary and financial markets,” he said.

Visco said it was necessary for euro-region nations to build a fiscal union and sacrifice some national control over budget policy to strengthen the single currency.

The chances of the monetary union fracturing are “remote,” though fears of a breakup “are conditioning the thinking of international investors,” and leading to surging borrowing costs in Italy, he said.

Unjustified Spread

“The difference in yields between Italian and German government bonds is by far greater than what is justified by the fundamentals of our economy,” he said. Italy’s 10-year bond yields 5.9 percent, 4.6 percentage points more than the equivalent German bund.

Prime Minister Mario Monti, speaking at the same meeting, said that European leaders were making progress in resolving the region’s debt crisis, even if it wasn’t reflected in the country’s borrowing costs.

“The fact that the results are slow in coming, is really a reason of frustration for us,” he said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE