HIGHLIGHTS-ECB's Constancio at EU assembly committee
BRUSSELS, March 23 |
BRUSSELS, March 23 (Reuters) - The following are comments by European Central Bank vice-president nominee Vitor Constancio during a pre-confirmation hearing at the European Parliament's Economic and Monetary Affairs Committee on Tuesday.
ON CREDIT DEFAULT SWAPS
"I am not in favour of banning products. What I said ... is that in particular CDSs should move to an organised exchange. I think serious thought should be given to the possibility of banning naked short-selling of CDSs. Not other instruments. Because of the particular nature of these instruments -- they are supposed to be an insurance instrument and the way they have been used ... is that it has been abused and used for other purposes."
"I am not in favour of totally banning naked short-selling of CDSs because... it would kill that market."
ON EURO BONDS
"Euro bonds cannot be created to substitute the debt of a particular member state. They should not be an instrument giving the (European) Union responsibility for the debt of a specific member state -- that would be contrary to article 123."
"The use of euro bonds to substitute and directly assist in resolving or diminishing the problem of sovereign debt is not to be recommended."
ON EXCHANGE RATES:
"Monetary policy cannot and should not be used to try to keep the exchange rate at a certain level."
"Interbank money markets are now functioning and so banks have the liquidity they need."
"It is impossible, unfortunately, to disentangle from developments of credit ... the effects of demand, which goes down in recession and the effect of supply restrictions that banks may have introduced. We may not really know."
"The acute phase of the crisis has been lived through. It is now proper that countries really start to consolidate public finances. And that may have the positive impact on medium- and long-term interest rates, which is very important."
ON IMF, GREECE
"I am not in favour that Greece should go to the IMF for a programme. We must be aware of what the IMF does -- first it defines and imposes a programme of adjustment on a country. This has been done by a European institution. Greece had to revise twice its initial programme as a result of the pressure from the European institution and the programme that Greece now has is not different from the one that the IMF would recommend. We even presume that the programme would be the same. So no added value from the IMF in that respect."
"The second thing the IMF does is to lend money, which would never be enough for the annual needs of Greece. The role of the IMF is to be a catalyst. It is to impose programmes on countries, provide some money and as a result of that the countries will regain success to enter the financial markets."
"That is something that Europe can do and should do."
"Going to the IMF for a member of the euro area could be interpreted internationally as some sign of weakness of our institutions, of our framework of monetary union, and that would be detrimental to the euro if it happened."
"And I don't see the need -- we have the means to do it ourselves. Why involve another institution?"
"Greece does not need a bailout, it has approved its programme, went to the market after that, it paid more, but the risk is higher so it is normal that it pays more (and) has access to the market. If it needs short-term liquidity support, Europe in my view has the instruments to do it, it has nothing to do with a bailout because Greece will have to continue to assume all its debt and pay normal interest rates for that debt."
ON PROPOSAL FOR EUROPEAN MONETARY FUND
"In my view it is not necessary to revise the (EU) treaty to create such an institution. It can be done as reinforced cooperation without violating articles of the treaty, including ... the so-called bailout."
"We have to understand what bailout is. What is in the article is that it is forbidden for the monetary union or a country to assume debt from another member country."
"But of course credit is not a bailout. Credit is credit. If credit is given at interest rates that are normal, not subsidised, then of course that cannot be construed as a bailout."
ON EURO BONDS
"It is not for the ECB to be involved in the issuance of euro bonds."
ON RATING AGENCIES
"It is important that ratings from rating agencies do not play a role in regulatory issues."
"It is possible that we avoid that without creating any new agency. Agencies will continue to operate, the market will consider them or not, but we may avoid having the use of ratings for regulation."
"The creation of the European agency will not change the scene in that respect."
ON EMF PROPOSAL
"The European monetary fund -- I think it is possible. It is not necessary, in my view, to revise the (EU) treaty to create such a body, and I have my arguments. But I still don't see exactly the role that this fund would play."
"But if it is considered that it is necessary to strengthen the framework, then I am for it."
"The two main things in my view are the following: regulation and supervision of leverage, of total leverage."
"Global imbalances -- the problem is not solved. All major players must understand what is at stake."
"Big countries, with big imbalances, in both directions must do their duty. In their long-term interest it is to cooperate."
"Mechanisms of the Stability and Growth Pact must be reinforced and some changes are needed in that area."
ON GROWTH AND INFLATION
"As long as we have a depressed economy, as long as a result of that there are no risks of inflation in the near future, then of course monetary policy will continue to play that role of supporting the economy."
ON LIQUIDITY SUPPORT
"As regards ... reducing the levels of liquidity support, we are reducing them because they are not necessary any more. Money markets have normalised, so the kind of liquidity support from the central bank is not necessary at the same level now as when the markets were frozen. They are not frozen any more."
ON ECONOMIC CYCLES
"They are not so much different. If you calculate the level of dispersion of GDP growth in member countries ... you can see that since the inception of the euro the dispersion has been reduced. So there is more synchronisation of the economic cycle now than at the beginning of the monetary union in 1999."
ON STIMULUS EXIT/RISK OF DOUBLE DIP
"Regarding the risks of the possibility ... of too early exit being detrimental to the economy, there is risk of course."
"The fact that they are now gradually withdrawn will not by itself create a problem of a double-dip coming from that withdrawal, I don't see that."
ON SYSTEMIC RISK BODY
"I have still some remaining doubts about the instruments that are given to such a body, and the same occurs in other countries -- this point should require further reflection."
ON BANKS, INSURANCE
"I think that banking and insurance should be dealt with together, for all reasons, there is nowadays interpenetration of these two sectors and the products they sell."
"All banking and insurance groups in Europe have activity in the other sector, so there are many justifications to have the two together, and to have securities separately."
"I am fully against the FSA kind of model, I think it did not perform well in the crisis."
ON ECONOMIC CYCLE RESERVE
"Besides the changes in standards to permit a more flexible treatment of asset prices in periods of market stress and illiquidity, there is a need to introduce the concept of an economic cycle reserve along the lines proposed in the Turner review, calculated with the same methods used in the previous item, in order to set aside profit in good times to reduce losses in depressive economic cycles of the future."
ON TIMING OF REGULATORY REFORM
"There is ... a risk to be avoided concerning the timing of implementation. An immediate or quick implementation of all the measures, particularly those on capital requirements, could generate credit supply restrictions detrimental to economic recovery."
ON "TOO BIG TO FAIL"
"The problem is even becoming potentially worse by the increase in size of surviving institutions, a situation that is common after the crisis. Without dwelling on the arguments, let me state that I do not believe that the problem can be solved by a policy of systematic break-up of big institutions or by adopting a solution of protecting only narrow banks and distinguishing between utility and investment banks."
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