Bloomberg News

Praet Says ECB Urges Euro Ministers to Combine Bailout Funds

March 29, 2012

European Central Bank Executive Board member Peter Praet said euro-area finance ministers should quickly approve the combining of the region’s two bailout funds, the European Stability Mechanism and the European Financial Stability Facility, in order to expand emergency resources.

“The ECB welcomes the commitment of Europe’s leaders to regularly review the lending capacity of the ESM and urges them to quickly agree on a significant increase of the resources of the ESM by combining the lending capacity of the ESM and the EFSF,” Praet said in an article prepared for a seminar in Copenhagen today.

Euro-area finance chiefs will probably decide at a meeting in Copenhagen tomorrow to run the 500 billion-euro ($666 billion) permanent ESM alongside the temporary EFSF, increasing the size of the firewall, a European official told reporters in Brussels yesterday. The funds are designed to aid member states locked out of financial markets because of concerns about their debts, helping to stem contagion.

Praet said the debt crisis “is not over” and the responsibility for resolving it “lies with the euro-area governments, not with the central bank.”

The ECB has already cut its key interest rate to a record low of 1 percent and flooded the banking system with more than 1 trillion euros of cheap three-year loans to fight the crisis.

“While central banks can smooth the adjustment process of deleveraging and the implementation of structural reforms, they cannot provide a lasting solution,” Praet said. “The primary objective of monetary policy is to maintain price stability. Monetary policy cannot be a substitute for structural reforms, or for fiscal and financial discipline.”

To contact the reporters on this story: Frances Schwartzkopff in Copenhagen at fschwartzko1@bloomberg.net; Jeff Black in Copenhagen at jblack25@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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