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

MNI (London)
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."
     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."
     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:
--MNI London Bureau; +44 203 865 3829; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
[TOPICS: M$X$$$,M$$EC$]
MNI London Bureau | +44 203-865-3812 |

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