13 June 2013

Bloomberg: Trichet says ECB's monetary transactions perfectly legal

The ECB's Outright Monetary Transactions programme is "perfectly legal", and the German Constitutional Court should recognise that it is crucial for both Germany and Europe as a whole, former ECB President Jean-Claude Trichet said.

“What has been done by the ECB is legal, perfectly legal”, Trichet said. “It could also be demonstrated to the Constitutional Court that it was certainly an important element for the sake of Europe as a whole, and in particular for the sake of Germany. So I don’t think that there is really a case to consider that the ECB Governing Council didn’t do what it had to do.”

The as-yet-unused OMT foresees potentially unlimited purchases of bonds of debt-stricken countries that sign up to adjustment programmes. Conceived as yields on Spanish and Italian 10-year bonds exceeded 7 per cent, OMT has helped the cost of borrowing for nations like Spain and Italy fall to levels not seen in more than two years.

OMT’s creation provided investors with “an element of additional confidence, alleviating considerably the tail risk of the explosion of the euro area”, Trichet said.  What’s more, he said, “all European democracies have confirmed individually and collectively that they wanted to preserve the European Union and were not accepting the dismantling of the euro area".

Improving public finances have contributed to better investor sentiment, Trichet said. Governments in countries “that have been under stress” have reined in spending and cut current account deficits. Still, the former central banker said, “this is no time for complacency. We must encourage all the European countries to go further in the direction of a more achieved economic and fiscal federation".

“At the present moment the ECB has concentrated in the crisis on ensuring all banks in Europe would have access to liquidity without any problems”, Trichet said. “The central bank has also demonstrated it could intervene on the secondary market of treasuries, which is also something which has been very important.”

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