ECB fights to avoid role in euro zone rescue fund
Sep 25, 2011, 4:01 p.m.
Policymakers also indicated the ECB was ready to firehose another round of ultra-long liquidity into the banking system to subdue funding fears, a further move back in the direction of full crisis mode.
Debates at the meeting saw bankers recommending three- or even five-year funding operations, although ECB members suggested one-year operations were the likely first step.
"One of the instruments we had was, in the context of full allotment of policy, to have one-year tenders," Austria's Ewald Nowotny said.
"I think it might be advisable to think about reintroducing this approach. We could discuss a reintroduction."
Rate-cut expectations were also given a further boost by gloomy comments about the economy and the first signs the bank now fears the euro zone could fall back into recession.
"It is more likely now that the second half of 2011 will be less positive than expected and the key question is whether the current slowdown in the global economy is largely a transitory phenomenon ... Could it lead to a double-dip or is it just a soft patch? This is the issue we will have to monitor," said Stark, who oversees the economics department.
Nowotny said growth forecasts could well be cut , while Weber warned he expected a further escalation of the debt troubles.
"I fear very much the situation is going to deteriorate further before it improves," Weber said during a question-and-answer session.
"We all understand that there needs to be further action because what has been decided so far has not convinced the markets ... Ultimately I believe that if markets become much worse than they are now we will see drastic action (by policymakers to resolve the crisis)," he said.
(Editing by Dale Hudson)
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