Asmussen opposes ECB bond buys if conditions not met
European Central Bank policymaker Joerg Asmussen said he would want the ECB to stop buying sovereign bonds if its new purchasing programme was activated and the country concerned did not stick to the conditions attached.
Spain is the country most likely to benefit first from the ECB intervening under the programme – dubbed Outright Monetary Transactions – but Madrid must seek aid from Europe’s bailout fund before the central bank acts.
Such aid would come with conditions – reforms and budget targets – attached, though even if an aid plan were agreed the ECB would not be technically obliged to buy the country’s bonds.
“There is no automaticity,” Asmussen told journalists at an international press club dinner in Frankfurt.
“If we are in the situation (of activating the OMT) and a country no longer fulfils the conditions, I would be against continuing the bond purchases,” he said, addressing concerns in his native Germany that OMT beneficiaries might be able to renege on commitments.
The ECB included a strong dose of conditionality under the OMT after being caught out with its previous bond-buying plan last year, the Securities Markets Programme.
The Central Bank bought Italian and Spanish bonds under the SMP, only for Italy’s then Prime Minister, Silvio Berlusconi, to go back on reform promises he had made to get the ECB to step in, just days after he made the commitments.
Since launching the OMT in September, ECB President Mario Draghi has repeatedly said countries would only qualify for bond-buying support if they stuck to the conditions.
But his comments have failed to still doubts, mainly in Germany, that the ECB would still buy bonds even if a country failed to meet the conditions attached.
Turning to interest rates, Asmussen played down the prospect of the Central Bank cutting its deposit rate – now at zero – any further.
Asmussen’s comments echo remarks from Yves Mersch, an inflation-busting hardliner who this week joined Asmussen on the ECB’s six-member executive board. Mersch said he did not see the logic of a debate about rate cuts.
Their comments represent a push back against expectations of a rate cut, which grew after Draghi said there had been a “wide discussion” about rates at this month’s policy meeting, when the ECB held its main rate at 0.75 per cent.