Last month, the European Central Bank re-launched its bond-buying program to alleviate rising borrowing costs in Italy and Spain caused by financial troubles and government debt speculations. ECB Executive Board Member Jose Manuel Gonzales-Paramo said no decision has been made yet on the span of the unusual intervention. He said the majority of ECB’s board authorized the debt purchases and they will decide on its future. He added that they did not start the program as an answer to political demands being the most fiercely independent institution in the world. Critics advised ECB to center on stabilization of prices than on debt-buying but Paramo defended the bank’s record on inflation control saying no central bank has been more scrupulous with price stability than the ECB. He added that sometimes central banks develop their monetary policy by buying and selling public assets to maintain price stability.
Gonzales-Palarmo said Europe’s leaders, on July 21st, committed to create a new form of EU governance and speed up reforms, a requirement for strong leaders and for which the road map is clear. As for high unemployment issues in Spain which is one of euro zone’s highest, he said there has to be strong economic discipline and market reform to generate jobs. Spain’s government revamped the country’s banking system compelling minor savings banks to seek private capital or be subjected to nationalization. It also implemented measures for debt reduction and to some degree, rehabilitated its labor market. Paramo said the labor market reforms is like someone cutting salami, although experience shows it is better to do them all at the same time. He also added that Spain’s energy market and commercial distribution market are both ready for reform.
He acknowledged that banks carry most of the economic crisis responsibility in Spain and elsewhere by means of inexpensive mortgages and other lending. He said to follow the principle of making those who made wrong pay could result to higher unemployment, lower living standards and a lending squeeze – results that are unacceptable.