[HERRENBERG] The European Central Bank could examine the possibility of buying state bonds, a senior ECB policy maker said on Monday, saying that the bloc's recovery and that of its top economy, Germany, has lost pace.
Speaking to an audience near Stuttgart in Germany, Executive Board member Yves Mersch voiced concerns about the "critical" state of the euro zone's sluggish recovery and conceded that the ECB buying government debt was a theoretical possibility. "Should the situation deteriorate further, then we would have to weigh all possibilities based on their risk, how doable they are, the limits of instruments and their efficiency," he said. "It would be irresponsible if we were not to consider all options." The comments appear to mark a softening in tone for Mersch compared to two months ago, when he warned that quantitative easing - or printing money to buy state bonds - threw up legal questions.
Such a step would be radical in Europe, not least because it would face opposition within Germany, the euro zone's biggest economy by far. Many in its central bank have been lobbying for a more cautious approach, in part because they worry money printing risks runaway price inflation in the future.
But Mersch painted a gloomy picture of the 18 countries in the euro currency bloc. "The economic situation is critical, the growth is weak and inflation is unusually low," Mersch said. "The economy has lost momentum." "The moderate pick-up is very slow in historical terms," he said. "After other crises it was much quicker and steeper." Mersch also singled out Germany, saying it no longer stood apart against this bleak backdrop. There was no sign of improvement in its sluggish performance in recent data, he said.
As well as cutting the cost of borrowing to record lows, the ECB has also launched a scheme to buy covered bonds, debt backed by property or other assets.
Mersch said that the planned roll-out of this purchase programme to include reparcelled loans known as asset-backed securities would start next week.
Mersch also reiterated ECB demand that governments act to halt the decline by making economic reforms. "The weak growth that we see everywhere is a sign for the need for action across the euro zone," he said. Mersch flagged the importance of structural reforms, a term referring to more flexible labour laws, for example.