PARIS (Reuters) – Some euro zone central banks must be prepared to buy more bonds and others fewer to ensure the smooth transmission of the European Central Bank’s monetary policy, ECB policymaker Francois Villeroy de Galhau said on Monday.
The ECB has mobilised a range of unprecedented measures to mitigate the recession that the euro zone has sunk into due to fallout from the coronavirus outbreak.
Villeroy said that the flexibility of its 750 billion euro (£670 billion) Pandemic Emergency Purchase Scheme – the flagship bond buying scheme during the crisis – made it the instrument of choice to deal with the crisis.
Under that programme the ECB can target its bond purchases at countries seeing sharper rises in yields like Italy, whose spreads over ultra-safe German bonds blew out during the coronavirus crisis.
Normally euro zone central banks carry out such bond purchases in sync with each of the 19 euro member countries’ shareholding in the bank, known as the capital key.
Villeroy said in an online speech to France’s Société d’économie politique that in the current circumstances “clinging to the capital keys to determine each country’s purchase amounts would be an uncalled-for constraint that would undermine the very effectiveness of our intervention efforts”.
“Depending on market dynamics and liquidity conditions – and where these exhibit unwarranted gaps or there are risks of excessive volatility – certain national central banks must be able to purchase significantly more, and others significantly less, while ensuring the risks remain unshared,” Villeroy said.
Villeroy said debate about whether the ECB should be prepared to go further than 750 billion euros flagged so far only made sense if the ECB were ensuring the full effectiveness of the PEPP programme.
(Reporting by Leigh Thomas; editing by John Stonestreet)