European Central Bank need to help prevent bubbles
HELSINKI: European Central Bank (ECB) Governing Council member Erkki Liikanen said central banks should play a key role in preventing financial market bubbles and joined the chorus of policymakers calling for an ambitious approach to debt rules.
"Authorities have not had adequate means for intervening in the excessive rise in asset prices, lending and the excessive growth in indebtedness," Liikanen said in a statement linked to the Bank of Finland's quarterly report on Wednesday.
"Central banks should play a central role in putting into use measures whose effect is in calming excessive lending and indebtedness, so called macro-prudential policies."
The recent crisis has shown that there are massive risks associated with an uncontrolled rise in asset prices, he said. He also joined the chorus of ECB policymakers urging European politicians to toughen up new debt rules. "High levels of indebtedness along with a weakened competitiveness have sapped the markets' confidence in many countries' ability to service their debts." "When reforming the governance of economic policies, it is important that the EU and its member states are suitably ambitious," he said.
Liikanen added that low inflationary pressures and inflation expectations in line with the the ECB's price stability objective, had enabled the bank to keep monetary policy accommodative. He also repeated that the ECB decided last week to prolong its crisis-era tactic of lending banks all the 1-week, 1month and 3-month funding they request, up until at least mid April. The "banking system's liquidity demand has been fully met and this policy will continue to be practiced until at the least the end of the first quarter of the coming year," Liikanen said. -PB News