ECB seeks Buba's support in 'sterilisation' debate -Bloomberg

FRANKFURT Tue Feb 4, 2014 2:47am EST

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FRANKFURT Feb 4 (Reuters) - The European Central Bank would need overt backing from the Bundesbank to consider ending the operations that soak up money the ECB has spent on bonds issued by struggling sovereign borrowers, news agency Bloomberg said on Tuesday.

Ending those sterilisation operations would inject about 175 billion euros of liquidity, which would help ease strains in euro zone money markets.

Unnamed sources told Bloomberg that ECB President Mario Draghi had said he would contemplate asking ECB policymakers to halt the absorption of liquidity from the now-terminated Securities Markets Programme (SMP) if the Bundesbank helped sell the move to the German public.

Because the ECB has said it will keep the bonds it bought under the SMP until maturity, it will be years before the programme ceases to exist.

The ECB declined to comment on the Bloomberg report.

News agency Dow Jones said on Friday the Bundesbank would favour ending the sterilisation operations.

In weekly transactions, the ECB takes deposits from banks to offset its spending on the bonds, to ensure that bond purchases would not trigger inflation.

In recent weeks, the ECB has failed to completely offset the purchases. Last week, banks offered 151.2 billion euros, some 26 billion euros short of target.

The ECB revealed its SMP portfolio for the first time last February, showing it had 99 billion euros of Italian bonds, 44 billion of Spanish, 31 billion of Greek, 22 billion of Portuguese and 14 billion euros of Irish government debt.

(Reporting by Sakari Suoninen; Editing by John Stonestreet)

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