MNI POLICY: ECB Committed To Mandate, Tools - De Guindos

By Luke Heighton

     FRANKFURT (MNI) - The European Central Bank will continue to act within its

mandate to avoid fragmentation of the euro area economy and support national and

EU-wide fiscal responses to the Covid-19 pandemic, Luis de Guindos told MEPs

Thursday, while maintaining its commitment to achieving price stability.

     Two days after Germany's constitutional court ruled that the ECB would have

to prove the 'proportionality' of it's PSPP programme, thus raising questions

over the future viability of the bank's PEPP operations, de Guindos told the

European Parliament's Committee on Economic and Monetary Affairs that it was

through "exchanges such as this we can demonstrate and explain how EU

institutions are acting, within their mandate, to serve the European people in

these difficult times."

     The ECB remains "fully committed to calibrating all our instruments in the

proper way to support our mandate," De Guindos added, and will take "all

necessary steps to achieve our target as defined in the Treaty."

     In a possible coded rebuke to the panel of eight judges sitting in

Karlsruhe, after they criticised PSPP for creating "considerable risk of losses

for private savings," de Guindos said that "priority should be given to

initiatives and proposals aimed at mobilising private savings and improving

transparency and information for investors at the European level."

     --UNCOORDINATED RESPONSE

     However, De Guindos warned that while national fiscal support schemes in

response to the economic effects of the pandemic are "very welcome, the

differences in their size and design could distort competition, as they have not

been sufficiently coordinated at European level.

     "Loan guarantees also strengthen the nexus between banks and non-financial

corporations on the one side, and their sovereigns on the other," he continued. 

     "As we move forwards, a European approach is important to ensure a level

playing field and avoid fragmentation and the re-emergence of the bank-sovereign

doom loop."

     --CRISIS MANAGEMENT

     De Guindos called the crisis "an opportunity to develop a vision for

addressing pre-existing weaknesses in the banking sector and the crisis

management framework for banks." 

     At the same time, he cautioned, "the deteriorating profitability outlook

for insurers, liquidity risk in investment funds and higher risk exposures of

non-banks raise the risk of renewed strains on the financial system. These risks

may warrant sector-specific policy action." 

     "Further reflections are also needed to develop an adequate macroprudential

toolkit for this important and growing part of the financial system," he said.

--MNI Frankfurt Bureau; +49-69-720-146; email: luke.heighton@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

[TOPICS: M$X$$$,M$$EC$]