December 3, 2012 / 11:31 PM / 5 years ago

ECB Asmussen: Portugal needs more bond issues for OMT

LISBON, Dec 3 (Reuters) - Bailed-out Portugal needs to issue “reasonable amounts of bonds” with maturities longer than three years for it to qualify for the European Central Bank’s bond purchases programme, an ECB Executive Board member told a Portuguese newspaper.

In an interview published in Tuesday’s edition of the Jornal de Negocios, Joerg Asmussen, one of the ECB’s key negotiators for a closer integration of the euro zone, said Portugal took “a significant step forward” with the issuance of a three-year bond as part of a bond swap in October, but that was “not enough”.

Portugal replaced almost 3.8 billion euros ($4.97 billion) in bonds maturing in 2013 with three-year debt in its first step toward a return to bond markets since it sought a bailout in April 2011.

“The majority of the bonds were bought by domestic investors, which means that international investors have not yet returned to the country,” he told Negocios, adding that “one three-year bond issuance is not sufficient” in any case.

Asked what the country needed to do to gain access to the yet-to-be-activated Outright Monetary Transactions (OMT) bond-buying programme, he said: “I would say that it will be necessary to issue reasonable amounts of bonds with longer maturities ... along the yield curve.”

On Sept. 6, ECB chief Mario Draghi sought to calm markets’ unease about the spreading euro zone crisis by unveiling the new bond-buying programme, allowing for potentially unlimited interventions for ailing states that have market access.

Asmussen praised Portugal’s “remarkable” progress in its fiscal adjustment under the terms of the bailout and urged it to keep pressing ahead with the programme. He saw the goals of the programme, including budget deficit cuts and the return to the bond markets in the second half of next year, as achievable despite a steep economic recession in the country.

“Doing everything possible to meet the agreed objectives would send a very important signal to the markets, and Portugal has to re-enter the financial markets in the second half of next year. It really should meet its budgetary objectives,” he said.

Asked whether he saw risks of the slump in GDP and disposable income compromising the objective of reducing the debt, Asmussen said: “No, I do not.”

He said a 1 percent contraction in 2013 was still a likely central scenario for the ECB even though the Bank of Portugal recently had revised its forecast to a 1.6 percent drop. Portugal’s economy, which is expected to slump 3 percent this year, will enter its third year of recession in 2013.

He saw Portugal’s public debt as sustainable if the programme is fully implemented. De-leveraging in all sectors of the Portuguese economy is proceeding in an orderly fashion and there is no credit crisis, he said, adding that measures like setting up a development bank could improve access to credit.

He also saw no shortage of capital in Portugal’s banks.


The ECB policymaker said he “would not dispute that fiscal consolidation in the short term is negative for growth”, but saw no alternative and said the consolidation has to be done quickly, as the example of countries like Latvia has shown.

“If you have identified what needs to be done, the best thing is to do it quickly and not drag out the adjustment process unnecessarily, as at a certain point in time reform fatigue will set in and confidence will not return quickly.”

Asmussen said one of the risks for Portugal was the dynamics of exports that hinged on the global economic situation, but he was modestly upbeat about these prospects.

“I believe that we in Europe have made significant progress in the last year, and I am assuming that the United States will succeed in tackling the fiscal cliff and that China will avoid a hard landing. And I am not as pessimistic as others. I think that is the main reason for the difference,” he said.

He also said he did not expect any debt defaults in the euro area.

He reiterated his view that the European banking union, and its key element - common supervision - will not be fully operational before the beginning of 2014. But he said creating a common European deposit insurance scheme was not a priority.

“That is not something I see happening in the short term,” he said.

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