May 29, 2018 / 9:41 AM / 5 months ago

ECB's Constancio tells Italy: read the rules on central bank support

BERLIN (Reuters) - Any intervention by the European Central Bank to help Italy in the event of liquidity problems must meet the bank’s mandate and “certain conditions”, its outgoing Vice-President was quoted as saying on Tuesday.

FILE PHOTO: European Central Bank (ECB) Vice President Vitor Constancio holds a news conference at the ECB headquarters in Frankfurt, Germany, March 7, 2018. REUTERS/Ralph Orlowski

“Italy knows the rules. They might want to read them again,” Vitor Constancio told Spiegel magazine in an interview, according to a pre-release, when asked if the central bank would intervene if needed and rescue Italy from insolvency.

The ECB’s never-used emergency bond buying scheme — known as Outright Monetary Transactions or OMT — is a potential tool to help Italy but comes with a long list of conditions.

FILE PHOTO: European Union flags flutter outside the European Central Bank (ECB) headquarters in Frankfurt, Germany, April 26, 2018. REUTERS/Kai Pfaffenbach/File Photo

For a country to be eligible for OMT, it must be in a European Financial Stability Facility/European Stability Mechanism adjustment or precautionary program and support must be warranted from a monetary policy perspective.

A deepening political and constitutional crisis in Italy, the euro zone’s third biggest economy, fueled a sharp rise in the country’s short-term borrowing costs on Tuesday and renewed selling in the euro and stocks.

Italy’s president set the country on a path to fresh elections on Monday, appointing a former International Monetary Fund official as interim prime minister with the task of planning for snap polls and passing the next budget.

While To-year Italian bond yields have soared to 3 over percent recent days, they are well below levels they hit at the height of Europe’s debt crisis.

They yielded over 6 percent in mid-2012, when ECB President Mario Draghi, a former Italian central bank chief, promised to do “whatever it takes” to preserve the euro.

Reporting by Michael Nienaber; Editing by Paul Carrel and John Stonestreet

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