(With details and context)
PARIS, July 7 (Reuters) – Francois Villeroy de Galhau, a member of the Governing Council of the European Central Bank, said on Thursday he had no doubts about the forthcoming launch by the ECB of a new instrument to prevent an excessive widening of the yield spreads between the debts of the countries of the euro zone, a project criticized among others in Germany.
The President of the Bundesbank, the German national central bank, Joachim Nagel, expressed reservations on Monday on this project which would amount to coming to the aid of the most indebted countries of the monetary bloc, after having opposed it during a meeting of urgently the Council last month.
“I have no doubt that we will put in place an effective instrument to protect against unjustified fragmentation,” the governor of the Banque de France told Les Echos, adding that this mechanism would be finalized “as quickly as possible”.
“It’s not about the political concern to help this or that State. For monetary policy to be effective, it must be transmitted to all economic players in the euro zone. And we have solutions that we are working on,” he explained.
At the emergency meeting on June 15, the Governing Council pledged that the ECB would buy more government bonds issued by the most indebted countries, such as Italy, in order to prevent a surge their financing costs and a widening of “spreads”, yield spreads, in the context of the coming rise in interest rates.
For François Villeroy de Galhau, “it is likely that the mere existence of this instrument allowing rapid and massive intervention, if necessary, is sufficient, without the need to activate it”.
But if it were to be used, the bonds bought in this context could be resold before reaching maturity, once the crisis has passed, and the cash created by these purchases could be “sterilized”, he added. (Report Leigh Thomas and Marc Angrand)