‘ECB bond-buying does not mean cuts’

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Countries that apply for an ECB bond-buying programme will not necessarily be asked to make more cuts because certain governments have already taken strong steps in that direction, ECB executive board member Benoit Coeure said on Saturday.

Coeure, in remarks which could assuage some concerns in Spain about requesting ECB support to lower its sovereign bond yields, said the idea of the central bank's programme “is not to pile more austerity on top of austerity”.

“ECB intervention can only work if countries are on the road back to growth that will allow them to reduce their debt,” Coeure told France Inter radio.

“That does not necessarily mean more austerity. Certain countries, as we know, have already taken a lot of steps in the right direction and so there would not necessarily be any further demands made upon them.”

The ECB agreed on Thursday to launch a potentially unlimited bond-buying programme to lower struggling euro zone members' borrowing costs, despite resistance from Germany's Bundesbank, sending financial markets in Europe soaring.

ECB President Mario Draghi said the scheme to buy short-term sovereign debt in the secondary market was subject to “strict and effective conditionality”, including applicant countries first requesting a programme with the euro zone's EFSF/ESM bailout funds, which might involve commitments to carry out further reforms.

This raised doubts as to whether the government of Spanish Prime Minister Mariano Rajoy - battling a deep recession and unemployment running at around 25 percent - would apply. Rajoy has insisted that Spain has already taken the necessary painful steps to restore public finances.

“This is a discussion which must take place not between Spain and the ECB but between Spain and the other members of the euro zone ... It is a political decision,” Coeure said.

Deputy Prime Minister Soraya Saenz de Santamaria said Spain would discuss conditions attached to the ECB programme with its euro zone partners at a meeting of European Union finance ministers in Cyprus next week.

The premium investors demand to hold Spanish debt rather than German benchmark has already dropped to around 423 basis points from a high of around 646 basis points in July.

Coeure said the ECB's bond buying would not be enough to resolve the euro zone crisis and growth would remain weak in 2012 and 2013.

Lower debt levels were a condition for a return to growth, he said, but policies were also required to kick-start euro zone economies, such as the 120 billion euro stimulus package agreed by the bloc's leaders earlier this year.

“Today, we are in a situation where the single market is no longer working, particularly in the case of the capital market,” Coeure said, also pointing to fragmentation in the services and labour markets.

Coeure said that a Europe-wide unemployment benefits scheme would allow workers to move more freely around the region.

“There is a very wide range of economic policies to restore dynamism in Europe which has not been sufficiently explored,” he said. “It is urgent because this crisis has lasted many months and the further Europe is dragged into it, the worse the social and economic consequences will be.” - Reuters


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