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MNI (London)
--OMT Is Inappropriate Measure That Forces States To "Bend a Knee": Borghi
--External Fiscal Supervisor Is A Negative , Need New Post-APP Tools
By Silvia Marchetti
     ROME (MNI) - The European Central Bank's Outright Monetary Transactions
(OMT) programme, if ever adopted, risks infringing the budgetary sovereignty of
member states by forcefully placing them under the fiscal administration of an
external institution, Claudio Borghi, economic adviser to Italian coalition
partner Lega told MNI in an interview. 
     Borghi voiced concern over the possibility that the ECB could resort to the
OMT in future crises. The OMT was devised announced by the ECB as a response to
the sovereign debt crisis, but, to date, has never implemented.
     The risk of implementation increases as the bank's asset purchase program
ends, particularly in the absence of new monetary policy tools to tackle
potential economic downturns in the short-run. 
     "The ECB does not seem to have much headroom ahead when the APP finally
terminates, its current ammunition toolbox features just the OMT as a potential
mechanism to set-off wild spread spikes in the bloc, linked to unjustified
political reasons that rock markets," Borghi said. 
     The end of the asset purchase program could increase the chances of OMT
adoption by the ECB in case of need, but it is far from being "an easy or smooth
instrument to handle", argued Borghi, newly elected deputy at the Lower House
and renowned for his controversial anti-euro stances. 
     On the contrary, the OMT is untested, complex and negative with a
"country-specific" perspective. 
     Borghi downplayed the OMT's benefits, brushing it away as "a not
appropriate measure" and suggested the ECB identify and define new post-APP
instruments and options to weather any future economic slack. 
     According to Borghi, the OMT is a "violent and extreme measure that puts a
member state under the forceful administration of an external fiscal
commissioner, thus clashing and limiting national sovereignty".
     "The OMT may have a positive outcome in soothing market fears and averting
temporary disruptive risks in the monetary transmission mechanism at
pan-European level, but on a national level it can be very harmful and tough for
a specific country subject to the OMT," he added. 
     In return for being granted OMT help, the member state must abide to the
introduction of specific fiscal policies and tight budgetary programs with
step-by-step objectives and a strict roadmap, which is constantly monitored and
evaluated by the external supervisor, in this case the ECB, explained Borghi.
     It is a sort of "masked Greek-style emergency relief plan", he stressed,
placing the recipient country in a difficult and highly demanding position. It
would be worse than being permanently in Brussel's corrective arm. 
     "A member state must thus bend the knee to a fiscal watchdog and accept all
imposed external rules in exchange for OMT. This goes against the notion of
national sovereignty and it is unacceptable," noted Borghi. 
     Taking Italy's recent bond rout triggered by the incoming coalition
government, he noted how in that case a potential OMT might have helped survive
the financial turmoil, but at a very high cost for Italy.
     "Any country under sovereign attack over unfounded market fears, helpless
and cornered, and would be facing just two options: succumb to the spread war
and fall, or forsake its sovereignty in exchange for the OMT parachute which
would still however not guarantee its survival in the long run," he said.
     Monetary policy must therefore find some "other way out" of such
turbulences, with appropriate tools that do not put at stake a country's
integrity, added Borghi, who urged a speedy overhaul and strengthening of the
ECB strategy to properly address the post-APP era. 
--MNI London Bureau; tel: +44 203-586-2225; email:
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