A full-blown Spanish bailout can be averted if the European Central Bank starts buying the nation’s bonds in large quantities, according to Angel Gurria of the Organization for Economic Cooperation and Development.
A Spanish rescue “is totally unnecessary,” Gurria, secretary general of the OECD, said in a Bloomberg Television interview today in London. He said Europe should deploy all of its instruments “but mostly the ECB. There is the bazooka.”
Spain’s benchmark 10-year bond yield reached a euro-era record today as the nation’s seven-month-old government struggled to convince investors it won’t need more European funds after clinching as much as 100 billion euros ($120 billion in loans for its banks. The ECB hasn’t bought government bonds for 19 weeks after effectively mothballing the purchase program it unveiled in 2010.
The ECB should reactivate the program “more decisively and with bigger numbers” as “you have to stabilize the yields,” Gurria said. “There is no reason why Italy or Spain should be paying 7 1/2 percent.”
So far the ECB has spent 211.5 billion euros buying the bonds of distressed periphery nations. It ceased purchases in February amid concerns from some officials that it was a form of monetary financing, which is prohibited under the institution’s founding treaty.
“If you can’t do it in the primary market you do it in the secondary market, do it through a vehicle,” Gurria said. “Just do it.”
The OECD chief, who earlier delivered a speech at an event organised by the Official Monetary and Financial Institutions Forum, also said the debt crisis in Greece has been addressed “the wrong way” as policy makers “didn’t recognize it needed a restructuring the day it started.”
He said the country should be ring fenced, without elaborating, “and then give Greece the flexibility if they need more time” to meet the bailout conditions.