European Central Bank Executive Board member Joerg Asmussen said tapping Europe’s bailout fund won’t automatically trigger the ECB’s bond-buying program.
A government’s application to the rescue fund for aid is “a necessary, but not a sufficient condition for us to become active,” Asmussen said today in a speech in Kronberg, Germany, according to a text published by the ECB. “The ECB council independently decides in each case to what extent and for how long an intervention on monetary policy grounds is necessary.”
The ECB’s unlimited bond-buying plan, announced on Sept. 6, has yet to be deployed as Spain mulls applying for assistance from the rescue fund that would come with economic reform conditions attached. Asmussen defended the plan against German-led concerns that it amounts to printing money to finance governments.
“The printing press isn’t being fired up,” he said. “It’s not about monetizing debt, as some commentators have claimed. The money that’s injected into the market with the purchases will be removed again from a different place.”
Bridge to Nowhere
Asmussen said the ECB’s measures can both buy time and build a bridge for governments to enact reforms to make their economies more competitive and reduce deficits.
“But it can’t be a bridge to nowhere,” he said. “We need a long-term strategy for a more stable common economic and monetary union. It is time to correct the design faults of monetary union.”
The ECB board member addressed a proposal made on Oct. 16 by German Finance Minister Wolfgang Schaeuble that would boost the powers of the European Union’s monetary affairs commissioner, enabling the rejection of a state’s annual budgets.
“I think in any case that a budget should only be able to be rejected as a whole,” he said. “How that budget should be corrected should remain within the competence of the respective member state.”
Asmussen also warned that high growth rates in emerging economies in Asia may not be sustainable due to increasing inequalities and the susceptibility of export-oriented states to swings in the global economy.
“China has managed to come through the crisis relatively unscathed, mostly due to extensive public investment,” Asmussen said. “The loans that the state made for that do however have to be paid back. And that’s increasingly becoming a problem. Some Chinese cities are now facing bankruptcy.”