Bloomberg News

Knot Says ECB ‘Very Far’ From Resuming Bond-Purchase Program

April 13, 2012

European Central Bank Governing Council member Klaas Knot said officials are “very far” from reviving the government-bond purchase program.

“I think that we are very far from that situation,” Knot said at an event in Amsterdam today. “The instrument hasn’t been used for some time, but it’s still there. I hope we never have to use it again.”

Economists expect the ECB to revive its controversial Securities Markets Program as concerns about Spain reignite the sovereign debt crisis, a Bloomberg News survey shows. ECB Executive Board member Benoit Coeure suggested two days ago that the bank could resume purchases and his Spanish colleague Jose Manuel Gonzalez-Paramo told reporters yesterday that the program “remains in place.”

“I don’t see a good reason” for buying government bonds, Knot said. “I think there has been an overreaction to the unfortunate communication surrounding Spain.”

Spain’s 10-year yield jumped to 5.99 percent earlier this week, nearing levels that prompted Greece, Ireland and Portugal to seek bailouts. Italian three-year borrowing costs rose more than 1 percentage point at an auction yesterday.

The SMP was mothballed a month ago after the ECB’s 1 trillion euros ($1.3 trillion) of three-year loans reversed a sell-off in Italian and Spanish bonds that threatened to splinter the 17-nation euro region.

ECB officials are playing “bad cop and good cop,” said Thomas Costerg, an economist at Standard Charter Bank in London. “The true reality is perhaps in the middle. The door for further ECB intervention remains open, but the bar is still high for the ECB to pull the trigger. More market tension would be needed.”

To contact the reporters on this story: Jurjen van de Pol in Amsterdam at jvandepol@bloomberg.net; Gabi Thesing in London at gthesing@bloomberg.net

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


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