Peter Praet, the European Central Bank’s chief economist, made a fresh attempt to gain the backing of eurozone governments for one of the ECB’s key stimulus steps, to maximise its impact, saying some had been too quick to dismiss its proposal.
While economic recovery is in full swing in the US and the central bank there has started to withdraw its support, the ECB has stepped up its efforts to unblock lending to companies and boost growth, for example by buying repackaged loans.
As part of its stimulus, the ECB plans to buy top tranches of certain asset-backed securities (ABS). The central bank said it would also buy riskier parts if governments guaranteed them, but that idea was swiftly rejected by France and Germany.
“I think this avenue should be considered by governments,” ECB Executive Board member Praet told Reuters in an interview conducted on Thursday, referring in particular to redirecting existing support for small and medium-sized enterprises (SMEs).
“We weren’t suggesting governments to reinsure the whole market for mezzanine tranches, but to target SMEs lending. The amounts are not that important, considering also that existing facilities, which in some cases are not even used, can be tapped,” Praet said.
Such support would make the ECB’s efforts more effective in reviving the sector that accounts for a large part of the eurozone economy, which stagnated in the second quarter.
Such weakness was reflected in the relatively weak euro exchange rate, Praet said, rebuffing criticism the ECB was trying to push down its own currency.
“What is happening in the currency market is in line with fundamentals,” Praet said.