The May 10 decision by the European Central Bank (ECB) to buy eurozone sovereign bonds to increase liquidity in markets affected by the debt crisis was taken independently of any political pressure, a senior ECB official asserted this morning at the Risk Europe conference in Frankfurt.
"This institution is among the top in the world in keeping our independence far from the pressures of politicians in either direction, in order not to move an inch from our mandate. Nobody should fear going forward this means any change in our standard constitution and in particular the independence we fiercely defend," said José Manuel González-Páramo, member of the ECB's executive board.
Answering audience questions after his keynote address, González-Páramo said the ECB had no choice but to act given the market volatility in the eurozone before the package was announced. "It was a pure dislocation - the markets weren't reflecting fundamentals, so the ECB had to do it to restore sanity," he said.
He added that fears the decision could undermine the ECB's credibility in setting eurozone monetary policy were only natural, but also unfounded. "I think some of these comments are understandable coming from central bank institutions, but these operations are temporary and sterilised - one euro in means one euro out. So in that respect there is no issue in connection with any weakening of the commitment of the institution to the mandate of keeping price stability."
González-Páramo also criticised the credit risk principles employed both by banks and central banks during the crisis. He emphasised the damage caused by an over-reliance on credit rating agencies, because of potential conflicts of interest, methodological flaws and the lack of transparency in their activities. But he cautioned that not enough had been done to stamp out the full effects of unreliable ratings in legislation and regulation.
"The use of credit ratings in legislation, regulations and other supervisory policies is so widespread that I would agree with the Financial Stability Forum, which has questioned whether it is not these policies that unintentionally give credit ratings an official seal of approval and discourage investors from performing their own due diligence. This should certainly be one of the main concerns of regulatory authorities in the immediate future."
This article first appeared on Risk.net