ECB won’t solve serious debt problems: Rehn

FRANKFURT, June 18 (Reuters) – The European Central Bank is expected to limit rising borrowing costs for the euro zone’s most indebted members, but will not solve their debt problems or let fiscal concerns dictate monetary policy , ECB policy chief Olli Rehn said on Saturday.

At an emergency meeting this week, the ECB decided to direct bond reinvestment to help countries on the southern shore of the bloc and design a new instrument to contain the divergence in borrowing costs. Read more

But the ECB’s action will only go so far as to prevent “unwarranted” market movements and will not help countries in the event of serious debt problems, Rehn, the head of Finland’s central bank, said during the meeting. an event hosted by the Dallas Federal Reserve.

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“We are fully committed to preventing fiscal dominance — and/or financial dominance, for that matter,” Rehn said, referring to a situation where fiscal, not monetary, considerations dictate central bank policy.

“In the event of deeper structural economic weaknesses and debt sustainability issues, there is always room to activate monetary securities transactions.”

The OMT, a never-used emergency debt purchase program, can only be activated if a country participates in an economic adjustment program, a politically unpopular option since the bloc’s debt crisis a decade ago. year.

Borrowing costs have risen sharply around the world this year, with high inflation forcing central banks to raise interest rates to prevent rapid price growth from taking hold.

Italy, with a gross debt of around 150% of GDP, is among the most vulnerable in the bloc and the ECB intervened this week when its cost of 10-year borrowing jumped, overtaking Germany’s by 250 basis points.

Rehn said aid to individual members will only go so far as to ensure that monetary policy is transmitted to all corners of the bloc and that inflation is kept under control.

“While fiscal-monetary interaction is a fundamental feature of policy coordination in a monetary union like the eurozone, it cannot be at odds with central bank independence,” he said.

The ECB promised hikes in July and September, and said further measures are also likely in the fight against high inflation.

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Reporting by Balazs Koranyi; edited by Clélia Oziel

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