Draghi says ECB buying short-term bonds does not breach EU Treaty
Spanish economy minister confident of forceful intervention by central bank
European Central Bank President Mario Draghi on Monday argued that the ECB would not be in breach of the European Union Treaty in buying short-term sovereign bonds.
Draghi was speaking at a closed-door meeting of the economic affairs commission of the European Parliament in Brussels.
The Bundesbank has argued such purchases breach the EU Treaty and take pressure off countries in difficulty in pushing ahead with fiscal adjustment to restore market confidence.
Spanish Socialist MEP Enrique Guerrero, who attended the meeting with Draghi, said the ECB chief had stated: “Buying short-term bonds, with a maturity of one or two years, does not go against the mandate of the ECB. However, if it were to buy long-term bonds in the primary market, that would constitute monetary financing, which would be in breach of its mandate.”
“He said, for example, three years is OK,” Bloomberg quoted MEP member Jean-Paul Gauzes as saying.
Spain’s risk premium on Monday moved to 558 basis points during Monday’s session but subsequently eased to close at 547, down from 552 on Friday.
Economy Minister Luis de Guindos on Monday said he was confident the ECB would move to relieve the pressure on the sovereign debt of financially stressed euro-zone members such as Spain and Italy. The minister recalled remarks in July by ECB President Mario Draghi, who said the bank would do “everything within its powers” to ensure the continuation of the euro. The ECB “knows perfectly well what the problems of the euro are and will act accordingly,” De Guindos said in an interview with Spanish radio station Onda Cero.
The ECB has indicated that it is willing to restart its bond-buying program to relieve pressure on the sovereign debt of Spain and Italy in the secondary market. However, Draghi has conditioned such action to euro-zone countries first requesting the European rescue funds to buy their debt in the primary market.
Prime Minister Mariano Rajoy has said he will wait to see the conditions set by the ECB for renewing its bond purchasing before deciding whether to request intervention by the rescue funds.
Draghi is expected to outline the ECB’s bond-purchasing plans after the bank’s regularly monthly interest-rate policy meeting in Frankfurt on Thursday.
The German Constitutional Court is also due to rule on September 12 on the legality of the European Stability Mechanism, the permanent replacement for the temporary European Financial Stability Facility.
De Guindos insisted the government was set on bringing the public deficit down to 6.3 percent of GDP this year from 8.9 last year despite the fact that the shortfall in the central government’s finances in the first seven months of the year had already exceeded its target for the whole year of 4.5 percent of GDP.
“The government’s commitment to meeting the 6.3-percent figure this year is very firm” the minister said. “It is the number-one priority we have from the point of view of economic policy.”