LUXEMBOURG (MNI) – The bond market operations announced by the
European Central Bank Thursday in its latest response to the sovereign
debt crisis are needed to ensure the proper functioning of monetary
policy, ECB Governing Council member Luc Coene said Thursday.

Coene, who heads the Belgian National Bank, told journalists on the
margins of a speaking engagement here that “the operations we have
decided on have as the main intention to make sure that monetary policy
works. It’s to make sure that the monetary transmission mechanism has
its full effects that we have to do these operations.”

He continued: “This is not a traditional tool of monetary policy.
That is because we live in exceptional circumstances, which have as a
consequence that the transmission mechanism does not work. So under
these exceptional circumstances, we have to take measures that make sure
that monetary policy can exert its influence. There is absolutely no
contradiction. It’s part of the monetary policy implementation.”

Coene said the conditionality attached to planned bond purchases by
the ECB to drive down risk premia was “essential as well, because it’s
clear that we have quite a series of imbalances within the union. We
know what the origins of the imbalances are. We cannot unclog the
monetary transmission mechanism if these fundamental structural
imbalances are not addressed. So this conditionality is an integral part
of the whole operation and there is absolutely no contradiction between
these elements.”

As to how much time might pass between a request by a country for
intervention and corresponding action by the ECB in the secondary
market, Coene said, “that depends of course. This [memorandum of
understanding] will have to be approved by a lot of people. So it does
not depend upon us how fast we will react. It will depend on all the
other [institutions] that will have to approve these things. And then we
will intervene.”

It is the Governing Council that will decide when to terminate or
suspend interventions, he said, echoing remarks made by ECB President
Mario Draghi at his monthly press conference earlier in the day. “The
Governing Council is always the deciding body of the principal policy
questions. Of course we can leave operational implementation to the
Executive Board; that’s a different thing. But the policy decisions are
always taken by the Governing Council.”

The main topic of discussion at today’s Governing Council meeting
was not a rate cut but rather the market transactions, he said. “Clearly
that attracted most of the attention. But there was also some
discussion” of interest rates.

In prepared remarks made later, Coene said, “Today, the Eurozone is
the epicenter of the uncertainty that reigns in the global economy.”

Pointing to structural weaknesses, he conceded that “the Eurozone
…is not and has never been an optimal currency area.”

“It is true that for the moment a certain correction of these
disequilibria is under way,” he said, but this is by its nature a slow
and painful process.

He noted the increasing heterogeneity within the euro area and
reminded that central bank actions cannot replace governments.

“There is no time to lose,” Coene said, warning that the longer the
crisis drags on with weak economic growth as a result, the greater the
risk of long-lasting damage. In this context, he pointed to high
unemployment and the threat of a “lost generation” and “political
instability.”

–Frankfurt bureau tel: +49-69-720-142. Email: dbarwick@mni-news.com

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