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Ireland buckled on Sunday after weeks of intensifying market and political pressure and called for a bailout to stabilise its finances. Mersch said the move paved the way for the ECB to scale down its support, rather than hindered it.
“We only can welcome that now that we have a programme that will lead to stability in Ireland, this will allow us to continue on our gradual and prudent exit strategy,” Mersch, who also heads the Luxembourg central bank, said in an interview with CNBC.
“I think I would not take issue with the expectations that are presently in the market,” he added.
Mersch’s comments echo ECB Executive Board member Juergen Stark who last week insisted the ECB’s scaling down of support would continue in the new year despite the escalation of euro zone debt tensions.
The ECB will announce which elements of its support — mainly unlimited funding for banks — will stay in place beyond mid-January at its Dec. 2 meeting.
Until Ireland’s debt problems and contagion fears escalated, analysts had been expecting the ECB to return its longer-term 3-month, and perhaps 1-month operations, to competitive auctions while keeping unrestricted funding available in its 1-week tenders.
Mersch also said the ECB’s controversial government bond buying programme would not be scrapped, although new euro zone crisis safety nets now in place meant the need for it was not as acute.
Influential ECB policymaker Axel Weber, who heads the German central bank, last month renewed his fierce opposition to the purchases, saying they had not worked and should be ended.
“When we stepped in (with the bond buying programme) it was in a moment of institutional vacuum inside the (European) Union in terms of crisis management and crisis resolution. In the meantime we have seen the set up of the European Financial Stability Fund,” Mersch said.
“We are in a whole different environment now than when the SMP (bond buy programme) was set up and we have to take into account this change.”
“This does not mean the SMP will have to be scrapped altogether, only that it is not at present in the same functioning mode as it has been six months ago,” he added.
The ECB is expected to keep interest rates at a record low 1 percent at its meeting next Thursday. It will also update growth and inflation forecasts made by the bank’s in-house economists and lay out keenly-eyed plans on its support measures.
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