The European Central Bank is ready to activate its Outright Monetary Transactions program to buy government bonds, Executive Board member Joerg Asmussen said in an interview with Jornal de Negocios.
“The OMT program has not yet been activated,” Asmussen said in an interview with the Portuguese newspaper carried out on Nov. 30 in Frankfurt. “We are ready, but we have not yet conducted any purchases.”
Asmussen said the ECB “will not encourage or discourage any decision” regarding Spain and a possible request for financial assistance, Jornal reported. “It is entirely up to the Spanish government to decide what is best for its country,” he said.
Portugal is still not at a stage at which the OMT program can be used, he said, according to Jornal. It will be necessary to issue “reasonable” amounts of bonds with maturities of more than three years, Asmussen was quoted as saying.
“Portugal has taken a significant step forward with the issuance of a three-year bond as part of a bond swap, but that is not enough,” he said in the interview. “The majority of the bonds were bought by domestic investors, which means that international investors have not yet returned to the country. It will have to issue reasonable amount of bonds with a longer maturity. Moreover, the country is essentially dependent on financial assistance,” Jornal cited Asmussen as saying.
Portugal’s goal of regaining access to bond markets in the second half of 2013 is within reach, he said, according to Jornal. “The program is broadly on track. Portugal’s achievements under the program are remarkable and if the program is followed 100 percent, the objective is achievable.”
European finance ministers cut the rates on Greece’s bailout loans, suspended interest payments for a decade and gave that country more time to repay at a meeting in Brussels that ended on Nov. 27. Asmussen said a decision to extend those conditions to Portugal and Ireland was not discussed, according to the newspaper.
Ireland and Portugal are receiving favorable treatment by not having to participate in the reduction of interest rates on loans to Greece, Asmussen said.
Portugal’s debt is sustainable if the financial aid program is fully implemented, Asmussen was cited as saying in Jornal. Portugal’s debt will peak at 122 percent of gross domestic product in 2014, according to the aid plan. He reaffirmed a forecast for Portugal’s GDP to contract 1 percent in 2013, according to Jornal.
“We in Europe have made significant progress in the last year, and I am assuming that the U.S. will succeed in tackling the fiscal cliff and that China will avoid a hard landing,” Asmussen was cited as saying.
Asmussen said he does not see a common European deposit insurance system “happening in the short term,” Jornal reported. Asked by the newspaper if the ECB will act as a lender of last resort for banks, Asmussen said “we have special responsibility for the banks, but there are limits. We only provide liquidity to sound banks against adequate collateral.”
Link to newspaper’s website: http://www.jornaldenegocios.pt/