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ECB’s Liikanen Says Bond Program to End Markets’ Attack on Euro

European Central Bank Governing Council member Erkki Liikanen said the bank’s bond-buying plan is intended to quell financial markets’ assault on the euro by regaining control of borrowing costs.

“The aim of the decision is safeguarding monetary policy transmission and the singleness of the monetary policy,” Liikanen, who also heads the Bank of Finland in Helsinki, said in an e-mailed statement today. “Unfounded risk premia, for example those related to the reversibility of the euro, are not acceptable.”

The ECB is preparing to buy debt with a maturity of up to three years on the secondary market to ease pressure on countries’ sovereign bond yields. ECB President Mario Draghi last week unveiled details of the unlimited program, which requires the countries to accept “strict and effective” conditionality in the form of a program administered by the European Financial Stability Facility or later the European Stability Mechanism, Liikanen said.

It is now up to governments in countries such as Spain and Italy to trigger ECB buying by requesting aid and agreeing to reforms. The Frankfurt-based central bank’s plan doesn’t “change the division of responsibilities between member states and the ECB,” Liikanen said.

ECB Executive Board member Joerg Asmussen suggested policy makers may sell bonds purchased under their new program if governments don’t stick to agreed conditions. ECB’s statutes allow the bank to be “active on financial markets by buying and selling securities,” he said yesterday when asked whether the central bank would consider dumping the bonds in case of non-compliance.

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