FRANKFURT (Reuters) – The European Central Bank has only limited responsibility in maintaining financial stability, executive board member Yves Mersch said on Thursday, rebuffing calls for the bank to do more beyond getting inflation back on track.
With Italy’s new government testing the patience of markets over fiscal proposals, some in the country’s political establishment have suggested the ECB could do more to keep its borrowing costs low after yields surged in the spring.
“The (EU) Treaties did not make financial stability an ECB objective,” Mersch told a conference. “The ECB’s only primary responsibility is price stability.”
Mersch argued that financial stability, a vaguely defined concept, is relevant for the bank if it is needed to keep inflation on target and the rest of the work must be done by at the national level, in part to shield the ECB from political pressure.
Still, Mersch’s tone on the issue appeared somewhat softer than the German view after Bundesbank President Jens Weidmann called the idea of giving the ECB a role in stability a “perilous” proposal.
“Addressing issues of financial stability in order to promote price stability is therefore possible with two caveats,” Mersch argued. “First, price stability enjoys primacy… second, financial stability-related policies need to comply with the principle of proportionality.”
But ultimate responsibility remains with the political establishment since decisions have a bigger distributional impact and the resulting political pressure could test the independence of the bank, he said.
“The ECB might be better suited to ‘contributing’ in an advisory capacity … Otherwise political pressures to adopt one or the other stance in questions of financial stability might also threaten central bank independence,” Mersch added.
(Reporting by Balazs Koranyi; Editing by Gareth Jones)