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ECB as Lender of Last Resort Would End Crisis for Silva
Nov. 11 (Bloomberg) -- The European Central Bank can stop the spread of the
continent’s financial crisis with “foreseeable, unlimited” purchases of
Italian and other government bonds, Portuguese President Anibal Cavaco Silva
said.
“The European Central Bank has to go beyond a narrow interpretation of its
mission and should be prepared for foreseeable intervention in the secondary
market, not as the central bank has done up to now,” Cavaco Silva said
yesterday in an interview at Bloomberg headquarters in New York. He said
government leaders are unlikely to move fast enough to find solutions.
Portugal's President Anibal Cavaco Silva
“It has to be able to be a lender of last resort,” said Cavaco Silva, 72,
who as Portugal’s prime minister presided over the 1992 signing of the
Maastricht Treaty, which cleared the way for the euro common currency. “It
has to be a foreseeable, unlimited intervention.”
Italian 10-year bond yields this week climbed to a euro-era record of 7.48
percent, surging past the 7 percent level that led Greece, Ireland and
Portugal to seek international bailouts. Ten-year Italian rates were
recently at 6.63 percent after yesterday’s successful auction of one-year
bills.
ECB as Last-Resort Lender Will End Crisis for Portugal
Such ECB purchases in the secondary market “would stop speculation, would
stop doubts about the future value of those Italian or Spanish or Portuguese
or Irish bonds,” the president said. “The real firewall is in the
European Central Bank.”
He said the ECB won’t convince investors of its commitment if it continues
“as the central bank has done up to now, saying ‘I don’t like it, but I’
m forced to buy some Italian bonds.’”
ECB Response
ECB Governing Council member Klaas Knot of the Netherlands said yesterday
the central bank can’t do “much more” to stem the 17-nation euro region’
s debt crisis.
Knot is the latest ECB policy maker to signal the central bank is unwilling
to significantly ramp up its bond purchases to calm financial markets. ECB
Executive Board member Peter Praet of Belgium and council member Jens
Weidmann of Germany have also said the ECB cannot legally buy bonds to bail
out a debt- strapped member state.
The cost of insurance against default on Italian government bonds eased to
569 basis points yesterday from the previous day’s record 571. That
compares with 1,072 basis points for Portuguese debt, 749 for Irish bonds
and 93 for German bunds.
Investors are demanding 964 basis points, or 9.64 percentage points, in
additional interest today for Portuguese 10-year debt relative to comparable
German debt, down from a record 1,071 basis points in July.
Raising Taxes
Portugal is raising taxes, cutting pensions, and reducing government workers
’ pay to comply with the terms of the 78 billion-euro ($106 billion) aid
package it received from the European Union and the International Monetary
Fund in May. Portugal is committed to meeting terms of the bailout, though
the country’s austerity should be eased by bringing capital requirements on
Portuguese banks in line with rules for other countries’ lenders, Cavaco
Silva said.
By forcing Portuguese banks to lift Core Tier 1 capital levels to 9 percent
by year-end, while other European banks have until mid-2012, the bailout is
imposing unnecessary hardship on the economy, the president said.
“The deleveraging is too strong and too fast,” said Cavaco Silva. “It
would be reasonable to be more gradual, and we hope the troika will
understand this,” referring to the EU, IMF and ECB officials who review
Portugal’s compliance. It’s not a renegotiation of the bailout agreement,
he said, adding “no, not at all, that’s not a question.”
University of York
Cavaco Silva, an economist with a doctorate from the University of York in
England, entered politics as finance minister in 1980 and 1981. He won the
leadership of the Social Democratic Party in 1985 and served as prime
minister from that year until 1995, the longest tenure of any democratically
elected prime minister in Portugal.
He won the presidency in 2006, sharing the stage with Socialist Prime
Minister Jose Socrates, whose minority government fell in March after he
failed to win support for deficit-cutting measures.
Prime Minister Pedro Passos Coelho, a Social Democrat elected in June, is
committed to reducing the budget deficit to 5.9 percent of gross domestic
product in 2011 from last year’s 9.8 percent, and to 4.5 percent in 2012
before returning to the 3 percent limit set by the EU for countries using
the euro.
‘Indiscipline and Irresponsibility’
Passos Coelho yesterday said the ECB shouldn’t pay for some countries’ “
indiscipline and irresponsibility,” and that there isn’t sufficient
consensus in Europe to change the central bank’s mandate. The ECB’s
interventions as they stand have guaranteed some financial stability, he
said in parliament.
Portugal’s economy will shrink 3 percent next year, the European Commission
forecast yesterday. It would be one of only two countries with declines in
GDP, the other being Greece with a 2.8 percent drop, the commission said,
while the euro area expands 0.5 percent. Portuguese GDP is forecast to fall
1.9 percent this year, the commission said.
The country’s benchmark PSI-20 Index has tumbled 27 percent this year,
compared with a 14 percent decline in the Stoxx Europe 600 Index and a 23
percent drop in Italy’s FTSE MIB Index.
Portugal’s government, which forecasts a 2.8 percent GDP decline for next
year, sees a 1.2 percent recovery in 2013, paving the way for it to return
to the markets when the three- year bailout program ends. Whether that will
happen on time is impossible to predict, Cavaco Silva said.
European Summit
“I can’t say that Portugal will be able to go to the market at the end,
nobody can say that,” he said. “Nobody could anticipate what is happening
now in Italy.”
Still, according to decisions at a European summit in June, Portugal will
qualify for continued aid as long as it’s complying with the terms of the
bailout agreement, the president said. He’s confident Europe’s leaders
will make decisions in the future that will get the region through the
crisis, he said.
Nov. 11 (Bloomberg) -- The European Central Bank can stop the spread of the
continent’s financial crisis with “foreseeable, unlimited” purchases of
Italian and other government bonds, Portuguese President Anibal Cavaco Silva
said.
“The European Central Bank has to go beyond a narrow interpretation of its
mission and should be prepared for foreseeable intervention in the secondary
market, not as the central bank has done up to now,” Cavaco Silva said
yesterday in an interview at Bloomberg headquarters in New York. He said
government leaders are unlikely to move fast enough to find solutions.
Portugal's President Anibal Cavaco Silva
“It has to be able to be a lender of last resort,” said Cavaco Silva, 72,
who as Portugal’s prime minister presided over the 1992 signing of the
Maastricht Treaty, which cleared the way for the euro common currency. “It
has to be a foreseeable, unlimited intervention.”
Italian 10-year bond yields this week climbed to a euro-era record of 7.48
percent, surging past the 7 percent level that led Greece, Ireland and
Portugal to seek international bailouts. Ten-year Italian rates were
recently at 6.63 percent after yesterday’s successful auction of one-year
bills.
ECB as Last-Resort Lender Will End Crisis for Portugal
Such ECB purchases in the secondary market “would stop speculation, would
stop doubts about the future value of those Italian or Spanish or Portuguese
or Irish bonds,” the president said. “The real firewall is in the
European Central Bank.”
He said the ECB won’t convince investors of its commitment if it continues
“as the central bank has done up to now, saying ‘I don’t like it, but I’
m forced to buy some Italian bonds.’”
ECB Response
ECB Governing Council member Klaas Knot of the Netherlands said yesterday
the central bank can’t do “much more” to stem the 17-nation euro region’
s debt crisis.
Knot is the latest ECB policy maker to signal the central bank is unwilling
to significantly ramp up its bond purchases to calm financial markets. ECB
Executive Board member Peter Praet of Belgium and council member Jens
Weidmann of Germany have also said the ECB cannot legally buy bonds to bail
out a debt- strapped member state.
The cost of insurance against default on Italian government bonds eased to
569 basis points yesterday from the previous day’s record 571. That
compares with 1,072 basis points for Portuguese debt, 749 for Irish bonds
and 93 for German bunds.
Investors are demanding 964 basis points, or 9.64 percentage points, in
additional interest today for Portuguese 10-year debt relative to comparable
German debt, down from a record 1,071 basis points in July.
Raising Taxes
Portugal is raising taxes, cutting pensions, and reducing government workers
’ pay to comply with the terms of the 78 billion-euro ($106 billion) aid
package it received from the European Union and the International Monetary
Fund in May. Portugal is committed to meeting terms of the bailout, though
the country’s austerity should be eased by bringing capital requirements on
Portuguese banks in line with rules for other countries’ lenders, Cavaco
Silva said.
By forcing Portuguese banks to lift Core Tier 1 capital levels to 9 percent
by year-end, while other European banks have until mid-2012, the bailout is
imposing unnecessary hardship on the economy, the president said.
“The deleveraging is too strong and too fast,” said Cavaco Silva. “It
would be reasonable to be more gradual, and we hope the troika will
understand this,” referring to the EU, IMF and ECB officials who review
Portugal’s compliance. It’s not a renegotiation of the bailout agreement,
he said, adding “no, not at all, that’s not a question.”
University of York
Cavaco Silva, an economist with a doctorate from the University of York in
England, entered politics as finance minister in 1980 and 1981. He won the
leadership of the Social Democratic Party in 1985 and served as prime
minister from that year until 1995, the longest tenure of any democratically
elected prime minister in Portugal.
He won the presidency in 2006, sharing the stage with Socialist Prime
Minister Jose Socrates, whose minority government fell in March after he
failed to win support for deficit-cutting measures.
Prime Minister Pedro Passos Coelho, a Social Democrat elected in June, is
committed to reducing the budget deficit to 5.9 percent of gross domestic
product in 2011 from last year’s 9.8 percent, and to 4.5 percent in 2012
before returning to the 3 percent limit set by the EU for countries using
the euro.
‘Indiscipline and Irresponsibility’
Passos Coelho yesterday said the ECB shouldn’t pay for some countries’ “
indiscipline and irresponsibility,” and that there isn’t sufficient
consensus in Europe to change the central bank’s mandate. The ECB’s
interventions as they stand have guaranteed some financial stability, he
said in parliament.
Portugal’s economy will shrink 3 percent next year, the European Commission
forecast yesterday. It would be one of only two countries with declines in
GDP, the other being Greece with a 2.8 percent drop, the commission said,
while the euro area expands 0.5 percent. Portuguese GDP is forecast to fall
1.9 percent this year, the commission said.
The country’s benchmark PSI-20 Index has tumbled 27 percent this year,
compared with a 14 percent decline in the Stoxx Europe 600 Index and a 23
percent drop in Italy’s FTSE MIB Index.
Portugal’s government, which forecasts a 2.8 percent GDP decline for next
year, sees a 1.2 percent recovery in 2013, paving the way for it to return
to the markets when the three- year bailout program ends. Whether that will
happen on time is impossible to predict, Cavaco Silva said.
European Summit
“I can’t say that Portugal will be able to go to the market at the end,
nobody can say that,” he said. “Nobody could anticipate what is happening
now in Italy.”
Still, according to decisions at a European summit in June, Portugal will
qualify for continued aid as long as it’s complying with the terms of the
bailout agreement, the president said. He’s confident Europe’s leaders
will make decisions in the future that will get the region through the
crisis, he said.
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