ECB’s Mersch says policy exit discussion should be ‘orderly’

When the European Central Bank decides to review plans for withdrawing its unprecedented stimulus, it should do so in an “orderly” fashion, Executive Board member Yves Mersch said.“It is always better to have an orderly discussion based on thorough studies,” Mersch said in an interview with Bloomberg Television in Cernobbio, Italy, on Friday. “Maybe it will be more efficient than to just have it through expressing personal preferences.”The Luxembourger’s comments come a day after President Mario Draghi quashed the idea that forward guidance — let alone policy — will be altered just yet. Some officials over the last few weeks have suggested tweaking communication on the future policy path.Mersch was one of the first to kick off the debate. Two months ago, he floated the idea of reviewing a reference to “even lower rates” in the central bank’s standard statement on guidance, a suggestion which was dismissed as “premature” during the Governing Council’s March 9 meeting. After that the debate became more controversial, with some governors suggesting rates might rise before quantitative easing comes to a halt, or that the time between the two actions might be shortened.While the time is not yet right for such changes, it’s important that policy makers keep an eye on how the economy is evolving, Mersch said on the sidelines of the Ambrosetti Workshop.“All our instruments which are encompassed by forward guidance, whether it is interest rates or QE, are time and state-contingent,” Mersch said.Executive Board member Peter Praet, the institution’s chief economist, has pushed back against calls to modify the central bank’s policy guidance, reassuring markets that nothing will change for now. The ECB currently says it interest rates will remain low “well beyond” the end of asset purchases.“In theory everything is possible, but you know that both interest rates and QE reinforce each other, you know that the forward guidance on interest rates and on QE also are interconnected,” Mersch said. “We have a recovery that is firming, that is broadening, that is gaining momentum. If this continues we would be within a whisker of not being able to speak of downward risks at some time in the future. When we last met there was still the opinion that we had downside risks.” Mersch also said Europe should follow its own rules when it looks at the rescue of Italian banks.“If Europe gives itself rules, then it should also abide by the rules,” he said. “That rule respect is a very important element where Europe has to make a little bit more progress.”The European Union has enacted procedures for failing banks meant to end taxpayer bailouts with the so-called “bail-ins.” The new rules came after governments used nearly €2tn ($2.12tn) in state aid to rescue the financial sector from 2008 to 2014.In their first test, Banca Monte dei Paschi di Siena and other two small Italian lenders requested a precautionary recapitalisation, which funnels government money to solvent banks without sending them into resolution. It also addresses a capital gap in a stress test and imposes lower losses than a full “bail-in” to investors.“This is a process that is still underway,” Mersch said in the interview with Kevin Costelloe of Bloomberg News. “The ECB is involved from the point of view of supervision but we have a strict separation between the supervisory side and the monetary policy side.”The complexity of the central bank’s new role has become clear in recent months. When the European Central Bank declared Monte Paschi solvent last December, the first step toward a state-funded rescue, some members of the 19-nation Supervisory Board weren’t fully on board, people familiar with the matter said.