18 April 2012

Reuters: Weidmann says not ECB job to tackle Spain's problems

European Central Bank policymaker, Jens Weidmann, says Spain should take a rise in its bond yields as a spur to tackle the root causes of its debt woes, not look to the European Central Bank to help by buying its bonds.

Weidmann, who has led a push by some policymakers from core eurozone countries for the bank to begin planning an exit from its crisis mode, said no ECB policymakers favoured using the bank's bond-buying plan to target specific interest rates on sovereign bonds, and ECB board member, Benoît Coeuré was simply stating a fact by saying last week that the programme still existed.

"We shouldn't always proclaim the end of the world if a country's long-term interest rates temporarily go above 6 per cent", he said. "That is also a spur for policymakers in the countries concerned to do their homework and to win back market confidence through the pursuit of the reform path."

ECB bond buying could relieve some of the pressure on Spain's yields, but using the plan last year caused deep internal divisions and prompted Weidmann's predecessor and another German policymaker to quit.

The central bank's intervention last year in Italy's debt markets succeeded in sending Italian yields lower, but the ECB was frustrated with Silvio Berlusconi's government for not passing reforms in return, as the ECB had pressed it to do.

Some investors are betting that the rise in Spanish borrowing costs will force the ECB to dust off its bond-buying programme, but Weidmann suggested countries should not be looking to the central bank for such help.

"It is not our job to provide financial aid in order to extend necessary adjustments over time", Weidmann said. "That is exactly what the bailout fund is for."

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© Reuters