From: Athinarayanan Sanjeevraja
Date: October 18, 2013
RE: ECB’s OMT Programme
Suggestion:
Good Morning Mr. President. Let me start by paying my respects to you
and through you to.
First up all, I would like to congratulate you carry out your duty best
as a Bundesbank President. As a Bundesbank President you are correct, the
causes of the euro crisis lie in the high level of indebtedness and the lack of
competitiveness of some member states. Now, eurozone government spending is
being reduced and reforms are being introduced across southern Europe but the
European financial markets don’t seem to recognise this progress and are
pushing up the interest rates on sovereign bonds to elevate.
Mr. President, you argued that the OMT programme of the ECB is illegal
due to the fact that it would make German tax payers liable for paying taxes to
cover potential losses made by the ECB. In my opinion, German tax payers are
the main beneficiaries of the OMT programme. The objective of the ECB’s
OMT programme is safeguarding an appropriate monetary policy transmission. As
you knew that the situation in the eurozone was most terrible – banks access to
finance was severely hampered, nominal interest rate has hugely diverged and
eurozone financial system was deeply fragmented. How to fix these untenable
situations? As a result, ECB implemented OMT programme and has lead to a
dramatic improvement in the monetary policy transmission. From my perspective,
OMT programme probably the most successful monetary measures to bring down the
sovereign spreads.
Mr. President, you argued that ECB lost confidence the architecture of
the monetary union. This is an erroneous to say that because OMT programme
addressed a fundamental problem of monetary union as countries in the eurozone
do not have direct influence on monetary policy but issue debt in euros. In my
opinion, OMT programme have been the right policy for that point in time. It is
erroneous to say that German tax payers may have to cover losses made by the
ECB. Even the central bank could put those government bonds into the shredding
machine, nothing would be lost. Indeed, it leads to losses for private holders
of these bonds but not the public holders. These bonds are valued at zero but
are still on the books of the central banks. In case debtor’s member state
default, the ECB would stop receiving interest revenue from debtor’s countries
and would stop paying out to the creditor’s government every year. I arrive at
an important conclusion that nothing would be lost for public holders and has
no fiscal implications. In fact your colleague at the ECB Jörg Asmussen argued that if the ECB didn’t act the
eurozone risked “uncontrolled
decomposition”.
Mr. President, all
member states have adhered to Maastricht Treaty which has to prevent the consequence
of poor budgetary policy and have to make a concerted effort to improve
Maastricht framework to ensure that member states remain in the eurozone and
ensure that euro remains a strong currency forever. As a Bundesbank President
and the member of European Governing Council your cooperation is must for
smooth functioning of European Central Bank.
Sincere Regards,
Athinarayanan
Sanjeevraja.
Athinarayanan
Advisory Authority
Athinarayanan
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