(For other news from Reuters Euro Zone Summit, click here)
* ECB bond-buying plan ready for use – Coeure
* Ireland, Portugal potential candidates but not yet
* ECB can’t do much when yields rise on political uncertainty
* Says France should cut deficit close to 3 percent/GDP
By Paul Carrel and Sakari Suoninen
FRANKFURT, Feb 27 (Reuters) – The European Central Bank’s bond-purchase programme is “not a nuclear deterrent” and is available for use, ECB policymaker Benoit Coeure said, with Ireland and Portugal candidates to tap the plan when they gain more access to debt markets.
The ECB launched the programme – dubbed Outright Monetary Transactions (OMT) – last September to counter investor fears of a euro zone break-up but it has yet to deploy it, with some policymakers at the bank preferring to keep it under wraps.
Coeure, the ECB Executive Board member in charge of market operations who would supervise day-to-day running of the OMT, said the programme was ready for use if countries had bond market access and an aid plan with Europe’s bailout fund.
“No, it’s not a nuclear deterrent,” Coeure said in a discussion at a Reuters summit on the future of the euro zone, when asked if it would be best for the plan never to be used.
“They are here to be used if countries meet the conditions,” he said. “So this is the discussion that we’re having in particular when it comes to Ireland and Portugal, that OMTs can be available at some point when countries have regained sufficient market access, which is not the case today in our judgment.”
Portugal and Ireland, both of which are recipients of European aid, have begun returning to debt markets and Irish Finance Minister Michael Noonan said last week his country plans to apply for the OMT plan but not just yet.
To qualify “we need to see issuance at different points along the curves and we need to have a sense that issuance is regular,” Coeure said. “On our side, we’re ready.”
Not all ECB policymakers are keen on the plan. Belgium’s Luc Coene, a member of the 23-man policymaking Governing Council that includes the six Executive Board members, said last month the programme was like a nuclear deterrent, better not used.
WON’T REACT TO POLITICAL VOLATILITY
Bundesbank chief Jens Weidmann was the only Council member to oppose the plan from the outset, which he described as “tantamount to financing governments by printing banknotes”.
Weidmann is also concerned that the calming effect the OMT programme has had on financial markets has reduced the incentive for euro zone governments to reform. Coeure concurred.
“There is a risk that the relative calm in financial markets weakens incentives to move forward, so there is wisdom in that remark,” he said. “We have to show that reforms are already bearing fruit.”
When ECB chief Mario Draghi began forming the OMT plan last July, yields on Spanish bonds were well above 7 percent. Now they are trading just above 5 percent though they were led higher by Italian yields after Italy’s inconclusive election.
The ECB would not respond to that sort of move and it would be a mistake to think it was fixated on the fluctuations of government bond yields, Coeure said.
“If yields go up because of political events, there is not much the ECB can do, that’s not related to monetary policy whatsoever,” Coeure said. “What matters to us is how monetary policy signals are transmitted to the real economy. I would focus more on say lending to companies, to households.”
The ECB was reviewing its collateral framework to make cheap money more accessible to small- and mid-sized firms, he added.
Coeure also said concerns about Ireland’s bank debt restructuring being monetary financing would be alleviated if the plan allowed the Central Bank of Ireland to sell the government bonds acquired through the deal quicker.
Turning to his native France, Coeure joined the ECB’s German policymakers – Weidmann and Joerg Asmussen – in pressing Paris to reduce its deficit as close as possible to its 3 percent/GDP goal this year.
“We would like to see action in 2013, because we think it is a matter of credibility,” he said. “We need to see corrective action not on taxes, but on spending, and action should be taken this year.” (Additional reporting by Mike Peacock, Luke Baker and Paul Taylor in Brussels)
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REUTERS SUMMIT-Bond-buying plan is there to be used - ECB"s Coeure
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