FRANKFURT, June 18 (Reuters) – The European Central Financial institution ought to restrict the rise in borrowing prices of extra indebted euro zone members however won’t remedy their debt points or let finances considerations dictate financial coverage, ECB policymaker Olli Rehn mentioned on Saturday.
In an emergency assembly this week, the ECB determined to direct bond reinvestment to assist nations on the bloc’s southern rim, and to plot a brand new instrument to comprise divergence in borrowing prices. learn extra
However ECB motion will solely go so far as stopping “unwarranted” market strikes and won’t assist nations in case of profound debt points, Rehn, Finland’s central financial institution chief, mentioned at an occasion organized by the Dallas Federal Reserve.
“We’re totally dedicated to stopping fiscal dominance – and/or monetary dominance, for that matter,” Rehn mentioned, referring to a state of affairs when fiscal, not financial, concerns dictate central financial institution coverage.
“Within the case of extra profound structural financial weaknesses and debt sustainability issues, there’s all the time the choice to activate Outright Financial Transactions.”
OMT, a never-used emergency debt buy scheme, can solely be activated if a rustic is participating in an financial adjustment programme, a politically unpopular possibility for the reason that bloc’s debt disaster a decade in the past.
Borrowing prices have risen sharply world wide this 12 months as excessive inflation is forcing central banks to rise rates of interest to stop speedy value progress from getting entrenched.
Italy, with gross debt of round 150% of GDP, is among the many most weak within the bloc and the ECB sprang into motion this week when its 10-year borrowing price surged, exceeding Germany’s by 250 foundation factors.
Rehn mentioned that assist to particular person members will solely go so far as making certain that financial coverage will get transmitted to all corners of the bloc and inflation is introduced below management.
“Whereas fiscal-monetary interplay is a primary characteristic of coverage coordination in a foreign money union just like the eurozone, it can’t be in contradiction with the independence of central banks,” he mentioned.
The ECB promised hikes in July and September, and mentioned additional strikes are additionally doubtless within the struggle in opposition to excessive inflation.
Reporting by Balazs Koranyi; enhancing by Clelia Oziel