Italian, German Central Bankers at Odds on ECB Role

A senior Bank of Italy official called on Wednesday for the European Central Bank to be more active in fighting the euro zone crisis, a rare push by one of the bloc's central bankers that quickly ran into resistance from Germany's Bundesbank.

A senior Bank of Italy official called on Wednesday for the European Central Bank to be more active in fighting the euro zone crisis, a rare push by one of the bloc's central bankers that quickly ran into resistance from Germany's Bundesbank.

Bank of Italy Director General Fabrizio Saccomanni said the ECB has shown it can take unconventional policy measures. He also singled out its ability to address financial market stability.

His comments took on particular significance as Spanish sovereign bond yields broke above the psychologically important 6 percent level, with investor concerns growing about Spain's banking system and Greece's political future.

"I think the ECB should play a more active role and should be allowed to play a more active role in market stabilization," Saccomanni told a conference in Florence.

"While staying within the rules of the Treaty, the ECB can do quite a bit and it has done so," he said. "I think it would increase the signalling power of the ECB if it was formally recognized that the European Central Bank can pursue both monetary and financial stability."

Although he is not a euro zone central bank governor, Saccomanni's comments marked an unusual departure from the resistance put up by the bloc's central bankers to political pressure for the ECB to do more to fight the crisis.

Just a day earlier, the central bank chiefs of Germany and Ireland pushed back against such pressure, placing the threshold for fresh ECB policy action a lot higher than market jitters over Greece's inconclusive election.

The ECB has faced renewed pressure over its role from France, where President-elect Francois Hollande has called on the central bank to lend to struggling euro zone states via the region's bailout fund.

The Bundesbank is leading opposition on the ECB's policymaking Governing Council to such pressure and the German national central bank kept up its mantra on Wednesday in a statement that was directly at odds with Saccomanni's comments.

"The real causes of the sovereign debt crisis cannot be solved by monetary policy," it said in a statement prepared for a German parliamentary hearing on the crisis.

EYE ON THE EXIT

The Bundesbank stressed the importance of separating monetary and fiscal policies in order to maintain the independence of the Eurosystem of euro zone central banks and confidence in the euro currency.

"In this respect, the balance sheet risks of the Eurosystem must henceforth be held within limits and an exit from unconventional monetary policy kept in view," it added.

The statement underlines the German central bank's view that the ECB should prepare to unwind the extraordinary measures it has taken to fight the crisis rather than embark on new ones.

These 'non-standard' measures include the ECB's bond-buying program - a plan that has been dormant for the last two months and which led to the resignation of the previous Bundesbank chief and another senior German ECB policymaker last year.

The Bundesbank said it was the task of the Eurosystem to provide liquidity to solvent banks, adding: "It does not have the task of repairing the lost solvency of states or banks."

The comments come as markets worry about Greece's solvency in the event that a new Greek government rejects the country's 130-billion euro bailout deal with the EU and IMF.

Speaking on the same panel as Saccomanni, European Monetary Affairs Commissioner Olli Rehn said the European Treaty setting up the ECB already allowed the central bank to support wider objectives as well as its primary mandate of price stability.

"I don't see a contradiction here," Rehn said.

In Germany, the chief executive of Europe's biggest insurer, Allianz, pressed the ECB to tighten its policy.

"There is a risk that a prolonged period of expansive monetary policy will create the next bubble, making it the precursor to the next crisis," Michael Diekmann said in the text of a speech for the insurer's annual shareholder meeting.

"The sooner we can return to normal monetary policy, the better," he added. (Editing by Jeremy Gaunt)