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ECB's Hansson says bond-buying conditions must be strong - MNI
September 13, 2012 / 11:26 AM / in 5 years

ECB's Hansson says bond-buying conditions must be strong - MNI

FRANKFURT (Reuters) - The European Central Bank may decide against buying a country’s bonds if it finds the bailout programme the country signed up to is not strong enough, ECB Governing Council member Ardo Hansson told MNI News.

He also told the news agency that the ECB should carefully consider the pros and cons of negative deposit rates.

The ECB last week agreed to launch a new and potentially unlimited bond-buying programme to lower struggling euro zone countries’ borrowing costs if they applied for assistance and abided by strict conditions.

“If we look at a programme that is acceptable to a particular country and it turns out not to be strong enough, that is an ex ante reason to say ‘no they won’t get the support from the ECB’,” Hansson told MNI News in an interview on Wednesday.

“I don’t think we can formulate our policy to do whatever is needed for governments to ask for a programme that is acceptable to them,” said Hansson, who heads the Estonian central bank.

“It was pretty clearly stated exactly what kind of programmes we would be looking for, and it is much more the kind of full programmes that are required for the ECB’s involvement.”

Faith in the ECB’s plan to buy bonds of struggling euro zone governments has been tempered by concerns over whether countries like Italy and Spain will submit to the conditions on fiscal policy that may be attached.

ECB officials have said it could stop buying a country’s bonds if it failed to stick to the agreed programme but most analysts expect conditions would not vary substantially from what Madrid and other governments have already committed to.

Hansson said that “it is obviously a challenge because there will be difficult choices where you trade off some short-term and long-term factor.”

“These are challenging situations and I find this conditionality quite critical, but I don’t underestimate the challenges that this creates,” Hansson said.

“Obviously you are forced to make these decisions at less than opportune times.”

Writing By Eva Kuehnen; editing by Patrick Graham

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