HELSINKI (MNI) – The non-standard measures of the European Central
Bank are “temporary” and cannot be compared to the quantitative easing
of the Federal Reserve, ECB Governing Council member Erkki Liikanen
stressed in an interview released Tuesday.

At the same time, the governor of the Bank of Finland intimated
that it might be some time before financial market confidence is
restored enough to assure the transmission of monetary policy without
exceptional support.

The ECB’s bond-buying program is “an ongoing program,” Liikanen
explained in an interview with the daily Helsingin Sanomat. “It is meant
to secure the transmission of monetary policy. It has no other
objectives.”

Asked how long it might take for markets to regain confidence in
the solvency of some highly indebted Eurozone states, the central banker
said, “If the confidence of markets is lost, restoring it will take a
long time.”

“When talking about Greece, this is more like a marathon than a
400-meter round,” he said. “The markets view about these things does
not change abruptly. It is gradual.”

Asked whether a 400-meter round might be compared to several
months’ time and a marathon to several years, he replied, “That
comparison is not wrong.”

“The Greek government has done everything that has been agreed
upon,” Liikanen said. “The government is still in a challenging
situation, as there has not yet come support from growth of the
economy.”

Liikanen went to great lengths to stress that the ECB’s bond-buying
is not intended “to finance public authorities” and thus does not
contravene its founding treaty.

“We are very careful that this public finance prohibition is
followed in every way,” he insisted. “All the time we are talking about
measures taken in the secondary market. Besides, the program is not
meant only for public bonds, it also allows for purchases of private
bonds.”

Moreover, “the additional liquidity brought by the program is taken
out of the market” through sterilization, he reminded. “Thus any
quantitative-easing effect will not arise.”

Liikanen noted that “the ECB lends only against sufficient
securities. Then the balance is secured. If the collateral requirements
are relaxed, then the haircut preferences are tightened accordingly.
This means that for collateral with greater risk, the haircut percentage
is raised. This is how we have acted to manage the risks.”

Asked whether the ECB would have sufficient means to assure the
transmission of its monetary policy if the crisis should grow, Liikanen
was evasive, but hinted that the ECB was in for the long haul:

“Substantially large tasks have come to central banks during the
crisis,” he said. “But it must be noted that ECBs lending to other
parties has decreased since last summer.”

“At the same time, there are banks that are too dependant on ECB
funding,” he said. “This is why their market financing has been tougher.
It is clear that this is an issue the ECB will deal with and necessary
actions will be taken.”

“However, it is clear that we have to be attentive all the time,”
he added. “We have to fulfill our mandate and thus have to take care
about the transmission of monetary policy.”

Liikanen noted the debate on the Council about whether or not to
continue with three-month full-allotment liquidity operations after
terminating the six- and twelve-month tenders.

“It was, however, still seen as the right way to continue [the
three-month operations] at fixed rates for next years first quarter,”
he said. “We dont have any pre-commitment. We make all decisions
based on the best knowledge possible at each meeting. These issues are
evaluated on the basis of the situation.”

Liikanen defended the coherence of the ECB’s evolving strategy:

“The ECB has not made any U-turns during the crisis; but it is
clear that this crisis of unprecedented magnitude has created a
substantial challenge for governments and central banks.”

“One must remember that during the fall of 2008, it was feared that
the monetary system would collapse. Action had to be taken to somehow
limit the fallout for the real economy, production and employment. The
central banks had to find new solutions in a new situation.”

“But all non-standard measures have been constructed to be
temporary,” he reiterated.

“Considering the path from 2007 to this day, I would say that what
characterizes the ECB’s action is credible alertness,” he said.

Liikanen played down the E5 billion hike in the ECB’s capital as
“undramatic,” explaining that the initial capital levels “were decided
12 years ago. It is natural that the capital and buffers must be
increased.”

–Antti Kerppola, +358 (0)41 528 2286; antti.kerppola@gmail.com

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