Coeure says ECB to discuss rate cut - FT

Benoit Coeure, Treasury Chief Economist, reacts as he speaks the day after France nominated him as a candidate for the executive board of the European Central Bank at the Bercy Finance Ministry in Paris November 25, 2011.

FRANKFURT (Reuters) - The European Central Bank is expected to discuss interest rate cuts at its next meeting, an ECB policymaker was quoted as saying on Wednesday, but although reducing rates from an all-time low of 1 percent was possible, it would not be a cure-all.

ECB Executive Board member Benoit Coeure also criticised governments for not using the EU bailout fund, the EFSF, to buy government debt of the countries in the eye of the debt crisis.

"Certainly it's a mystery why the EFSF was allowed almost a year ago to undertake secondary market interventions and governments have not yet chosen to use that possibility," he told the Financial Times in an interview.

However, he rejected arguments that the ECB should buy debt in the market again under its bond-buying programme, the Securities Markets Programme, or SMP. "We do not consider that the SMP would be the best instrument to use at the current juncture," he said.

The ECB has spent more than 210 billion euros (169.74 billion pounds)buying government paper, but while it has not officially ended the programme, it has not bought any debt for three months.

"Cutting rates is certainly an option as far as our monetary policy is concerned," Coeure said.

"It was discussed at the last governing council meeting and I would expect the next council to discuss it again."

While an interest rate cut would offer support to the ailing European economy, "it would certainly not fix the fundamental problems", Coeure was quoted as saying.

Coeure rapped governments for wasting time in coming up with solutions to the euro zone debt crisis and criticised politicians' communication, which have confused rather than calmed the markets, he said.

"Political choices have to be made and it's not surprising that markets are in disarray because they don't know the answers," Coeure said.

"Market participants, investors, especially those outside the euro area, are waiting for direction and decisions by political leaders."

On Greece, he said that the ECB was in a wait-and-see mode as the country builds a new government programme after last Sunday's election.

"When it comes to Greece there is an obvious political dimension - there was an election and we are waiting to know what will be the stance and commitments of the new government."

Coeure also hinted the ECB could again loosen the rules on what sort of securities it accepts in exchange for central bank loans, saying that while there is no general collateral shortage, the buffer has become strained in some places.

(Reporting by Sakari Suoninen; Editing by Ron Askew and Louise Ireland)