FRANKFURT (MNI) – The European Central Bank will continue to
monitor the situation in EMU sovereign bond markets and “do whatever is
necessary,” ECB Governing Council member Yves Mersch said in a newspaper
interview published on Thursday.

Mersch told the Wall Street Journal that the ECB’s government debt
purchase program had been successful, noting there was “less tension” in
bond markets. However, he stressed that the program added “an element of
complexity” and should only be used when necessary.

He reiterated that the program, as with all non-standard policy
instruments, was temporary in nature and would be phased out “when no
longer needed.”

Mersch, who heads the Central Bank of Luxembourg, said the ECB had
decided to intervene in the bond market to maintain the proper
functioning of the monetary transmission mechanism, which he now sees
working better “to some extent.”

“If you look at spreads, it’s certainly the case,” Mersch said. “If
you look what happened in the markets, (Tuesday) morning you saw Greece
has been in the markets (and) were able to borrow at rates which are
encouraging.”

“All in all, these are signals that we will monitor and take into
account when we discuss this temporary, non-standard measure in the
future,” he added.

Turning to the economy, Mersch said that 2Q would likely see a
stronger growth rate than 1Q and that, while a slowdown was expected for
the second half of this year, the recovery registered since mid-2009
“would not be put in question.” The central banker also “totally” ruled
out a double-dip recession, though he conceded “there might be an uneven
path of recovery in the second half of 2010.”

Still, 2011 bring a somewhat stronger GDP growth rate on the back
of returning internal demand and confidence, he said.

Asked whether the ECB’s bond purchases had hindered its
independence or credibility, Mersch said the central bank had never been
under pressure to implement any specific measures. “If we did some
measures it was because we felt that as a well-functioning institution
working on a near-federal model we had the responsibility to avert the
worst,” he said.

Mersch also stressed that, with inflation expectations still well
anchored, he saw no danger to the bank’s credibility. “We did not buy
government bonds in the primary market and [the purchases] did not ease
liquidity because everything was sterilized,” Mersch said. “Our monetary
policy stance was in no way affected.”

However, Mersch acknowledged that some observers may have been
confused by some of the ECB’s exceptional measures. “It takes time not
only for ordinary people — it takes time for market analysts to think
that this was the right thing and it was successful,” he said.

Nevertheless, as successful as the bond purchases were, it is a
tool that should not be abused, the central banker warned.

“I look at [the bond-buying facility] more like in a pharmacy,”
Mersch said. “You have one small cupboard where you know it exists and
which is closed with a double key and there is a skull on it; but it
exists,” Mersch said. “I think we should not get addicted.”

— Frankfurt bureau: +49 69 720 142; e-mail: frankfurt@marketnews.com —

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