Mensajepor Mr_Baca » Lun Sep 26, 2011 3:38 pm
DJ UPDATE: Top ECB Members Say Bank Can Do More, Urge Governments To Act
26-Sep-2011
--ECB's Orphanides says recognizing limits of monetary policy is crucial
--Calls current ECB policy stance "appropriately accomodative", policy rates "very low"
--Orphanides, Bini Smaghi say ECB ready to provide more liquidity to euro area banking system
--Bini Smaghi says euro area should look at ways to leverage EFSF
--U.S. Federal Reserve's Bullard expresses confidence Europe will support its banks
(Updates with comments from ECB's Orphanides, U.S. Federal Reserve's Bullard, recasts throughout.)
By Nathalie Boschat
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--The European Central Bank stands ready to provide the debt-troubled euro zone with additional support if necessary, two of its top officials said Monday, even as they put the onus on governments to act quickly to ward off intensifying debt woes in the region.
"It is crucial to recognize the limits of monetary policy. We can ensure that there is ample liquidity being provided [to the banking system], but this does not solve the underlying problem of the slow-moving political process" in the euro zone, ECB governing council member Athanasios Orphanides said at a conference in New York Monday.
Describing the current ECB monetary stance as "appropriately accomodative" and current policy rates as "very low", Orphanides stressed the ECB still has ammunition to help relieve sovereign-debt-related tensions in the bloc's financial sector.
"Ways to provide liquidity are always being investigated. It's not hard to do more," said Orphanides, who is also governor of the central bank of Cyprus.
Speaking at the same conference, ECB executive board member Lorenzo Bini Smaghi said: "in terms of liquidity, there is really the ability to refinance (banks). We are ready to do what is needed to ensure [our actions] get to the final demand."
Comments from the two top ECB officials come as investors ponder the central bank's next move in the face of the deteriorating economic outlook in the euro zone.
Ewald Nowotny, Austria's member for the ECB governing council, lately opened the door to a possible rate cut. But recent comments by ECB president Jean-Claude Trichet suggested the ECB could act first through non-standard measures to address market dysfunction due to the euro zone's sovereign-debt woes, while keeping the interest rate tool to ensure price stability.
While stressing the ECB's readiness to act, Orphanides and Bini Smaghi urged euro-zone governments to pick up the slack to restore investor confidence in the single currency bloc.
Key to patching up confidence is the fast implementation of a July 21 accord aimed at expanding the capabilities of the euro zone's bailout fund, as well as sound fiscal policies and strengthening economic governance in the euro area, they said.
"Going forward if our governments implement all aspects of the July 21 accord, it will be a huge step in solving uncertainty," Orphanides said. He cited lingering investor doubt that the agreement will be put in place fully as the main reason for the recent aggravation of market turmoil. "What we are facing now is a crisis of confidence," he added.
Once approved by all 17 parliaments of the euro area, the July 21 accord will allow the bloc's rescue fund, the European Financial Stability Facility or EFSF, to buy government bonds on the secondary market, to extend precautionary credit lines to states with financial difficulties and to recapitalize troubled banks.
Also crucial is ensuring the euro area has adequate backstop resources both to shore up larger core countries if necessary and to recapitalize troubled banks, Bini Smaghi said.
"We need to show that European banks are solid and that the financing of sovereigns will be smooth," he said.
Bini Smaghi expressed renewed support for euro-area governments to look into ways of leveraging the EFSF to give it more financial firepower in a crisis. He cited mechanisms used in the U.S. in the wake of the 2008 financial meltdown, such as the Term Asset-Backed Securities Loan Facility launched by the New York Federal Reserve or the Troubled Asset Relief Program initiated by the U.S. government, as examples.
St. Louis Federal Reserve president James Bullard, also present at the conference, expressed confidence euro-zone governments will do whatever it takes to shore up their banking system.
"Europeans are fully committed to backing their banks," he said, also dismissing the idea that the euro zone's debt travails would lead to a "Lehman event" like the one that triggered the 2008 crisis.
In response to a question about saving the euro zone, Bullard noted that in theory, a member country could default without having any currency implications. He cited high profile insolvencies in the U.S., such as the Orange County bankruptcy in the 1990s, that had no impact on the U.S. dollar.
"Strictly speaking, [a default] doesn't have to mean anything for the viability of the currency. It says nothing about the viability of the currency, but everything about the local entity's ability to handle their financial affairs," Bullard said.
Bini Smaghi, however, repeated the often-stated ECB view that default and the exit of the single currency are not viable options for euro-area members.
