ECB bond plan no substitute for reform: Asmussen

Tue Sep 11, 2012 3:19pm EDT
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FRANKFURT (Reuters) - The European Central Bank's new bond-buying programme is no substitute for government reforms and belt tightening, ECB policymaker Joerg Asmussen said on Tuesday, keeping the heat on Spain to reform its foundering economy.

The ECB executive board member also highlighted a clause in the bank's statute that says it can also sell the bonds it buys, implying that this could be used to apply pressure on countries to meet the conditions set for its help in holding down borrowing costs.

Asmussen's comments, just five days after the ECB agreed its potentially unlimited bond-buy plan, show the German ECB board member wants to deter Madrid and Rome from thinking they can afford to slow reforms if the ECB intervenes on their behalf in the debt markets.

The ECB has made any buying under its new plan conditional on the country concerned tapping the euro zone rescue fund for aid, which would come with strict conditions - a plan aimed at calming German fears about the ECB's strategy.

European policymakers are now jockeying over the nature of these conditions.

Another ECB board member, Frenchman Benoit Coeure, said on Saturday countries that apply for help will not necessarily be asked to make more cuts.

"The OMT is in no way a substitute for continued efforts in structural reforms and fiscal consolidation on the side of governments," Asmussen said of the ECB's new bond-buying purchases, to be known as Outright Monetary Transactions (OMTs).

"They are essential steps to regain trust and to ensure the sustainability of the euro area in the long run," Asmussen, a member of the ECB's Executive Board, added in a speech at Goethe University in Frankfurt.

Asked later by journalists if the ECB could sell bonds bought under the programme before they mature, he said: "Read article 18 of that statute, the president referred to that article in the press conference very much on purpose."   Continued...

European Central Bank (ECB) Executive Board member Joerg Asmussen smiles during an interview with Reuters in Berlin June 19, 2012. REUTERS/Pawel Kopczynski