VIENNA (MNI) – The European Central Bank’s government debt
purchases are only a temporary means of countering market tensions that
hamper the transmission of monetary policy, ECB President Jean-Claude
Trichet said Monday.

Speaking at a conference sponsored by the Austrian National Bank,
Trichet insisted that the ECB is not printing money, and stressed that
sterilization of the interventions would ensure the absence of any
effect on the bank’s current monetary policy stance, which he
characterized as “appropriate.”

Indeed, Trichet said, the debt-purchasing program confirms the
ECB’s attachment to price stability. The central bank is always prepared
to do what its mandate requires, he added.

Trichet emphasized the necessity for governments to practice
budgetary discipline.

“The latest measures address a malfunctioning of certain market
segments,” he said in reference to the controversial decision to
purchase government debt. “Without such measures, the market problems
could have created risks to the favourable outlook for price stability.”

He continued: “However, we have not gone beyond the goal of
re-establishing a more correct transmission of our monetary policy. We
have not changed our monetary policy stance: we have maintained the
present level of interest rates, which is, in our view, appropriate; and
we have not embarked on more ample liquidity conditions.”

Sterilization of the interventions is meant to “guarantee” that the
monetary policy stance of the ECB is not affected, Trichet said.

The debt-purchasing program thus “should not be confused with
quantitative easing,” he insisted. “In simple words: we are not printing
money. This confirms and underpins our commitment to price stability.”

Credibility is crucial for price stability, and well-anchored
inflation expectations mean long-term interest rates need not reflect
the uncertainty surrounding the evolution of prices, thus eliminating a
possible source of inflationary pressure, Trichet said.

In the euro area, inflation expectations have stayed well-anchored
in line with price stability throughout the crisis, the ECB president
affirmed, citing the Survey of Professional Forecasters.

The ECB was “fully independent” in its decision, which fits into
its philosophy of “never” hesitating to do as price stability requires,
Trichet said. “And we will continue to act accordingly.”

“As I have said time and again: we are permanently alert and always
prepared to act when necessary.”

Trichet defended the debt-purchasing program, saying it was in
accordance not only with ECB independence but with the Treaty as well,
given that the ECB is buying bonds only on the secondary market.

The program, which he called “time-bound,” does not by any means
release governments from their obligation to get their fiscal houses in
order, but rather is based on the expectation that they will do so, he
said.

“We had a lot of difficulty with several governments during the
last ten years, both as regards their own national responsibilities and
as regards their collegial responsibilities of peer surveillance in the
Eurogroup,” Trichet said. “This period is over. We expect from
governments strict respect for the principle of budgetary discipline and
effective mutual surveillance.”

Moreover, he emphasized, “the purchases made on the secondary
market cannot be used to circumvent the fundamental principle of
budgetary discipline.” They are strictly intended to correct
malfunctioning markets, he said.

“It is crucial that governments implement rigorously the measures
needed to ensure fiscal sustainability,” Trichet added. The “rigorous”
application by national governments of their fiscal consolidation plans
“is essential to guarantee the progressive return to a more normal
functioning of financial markets.”

The currently “challenging times” facing Europe include financial
market tensions, “a difficult fiscal situation in some parts of the euro
area, and an associated adverse impact on the effective functioning of
monetary policy,” Trichet said.

Common to all actions taken by the Eurosystem has been its
commitment to stable prices, he said. Its orientation has remained the
same even as the circumstances “have demanded special actions.”

–Frankfurt bureau tel.: +49-69 720142. Email: dbarwick@marketnews.com

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