Tuesday 26 September 2017

Dutch rule out ECB buying up any more government bonds

Brendan Keenan

Brendan Keenan

FURTHER purchases of government debt by the European Central Bank have been firmly ruled out by the Netherlands' central bank governor Klaas Knot.

Mr Knot told a Dutch magazine: "The buy-back programme is in a deep sleep and will remain there."

Even as the Federal Reserve and the Bank of England prepare to create more money by buying government bonds directly, the ECB has insisted it will not resume its programme of purchasing bonds from existing investors.

"If somebody wants to help southern Europe, then it has to be other governments, not the ECB," Mr Knot said. "We must not again be pulled into that political game.

"The price of such aid is that the risks on the ECB's balance sheet increase. You can't just continue endlessly. There comes a moment when our balance sheet is at stake," he said.

Analysts say the deal struck at last week's EU summit allows the possibility of bond-buying by the new rescue fund, the European Stability Mechanism (ESM). The ESM could be given a banking licence, which would allow it to borrow money from the ECB and buy bonds.

"That might keep the ECB sufficiently far from the purchases to overcome its legal and political objections to lending money itself to governments," said one analyst.

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