Backing bond market intervention by the European Central Bank, the Organisation of Economic Cooperation and Development (OECD) said on Friday that Europe must seize a “window of opportunity” offered by the relative recent calm of financial markets to tackle the simmering euro zone debt crisis.
“I think it is now time that the European authorities push strongly toward a solution,” said Pier Carlo Padoan, chief economist of the Paris-based organization.
The OECD represents a respected outside voice on how best to tackle the two-year crisis, and his comments come just days before the European Central Bank (ECB) meets to weigh controversial bond market purchases.
Padoan said the OECD had been braced for a very rocky August for euro zone financial markets, particularly for Spanish and Italian bonds, but this volatility had not emerged and stock markets were in fact now stronger.
“It is time to exploit what seems to be a credit-opening from markets on the European situation, so it is very important that authorities exploit this window of opportunity,” he said.
Padoan, speaking on the sidelines of the annual Jackson Hole policy retreat hosted by the Kansas City Fed, also made clear his support for bond-market buying by the ECB.
With less than a week to go before the ECB could decide to intervene directly to prop up Spanish and Italian bond markets, Padoan said he did not believe the wide bond spreads of weaker southern European nations reflected economic fundamentals, but rather the fear that the euro zone could break up.
“If that is correct, then the response to that spread has to deal with reassuring markets that the euro zone will not break up, in addition to the fact that those countries must continue with their structural adjustments,” he said.
“So intervening in bond markets, it is a very important temporary backstop to a wider strategy,” he said.
“If the ECB comes up with proposals that provide concrete content to the ideas about support of bond markets, that would be extremely important,” he said.
The ECB is set to meet on Thursday to review a proposal to buy Italian and Spanish bonds in order to gain breathing space for euro zone leaders to figure out a longer-term response to the euro zone’s sovereign debt woes.
The plan has met stiff opposition from Germany’s Bundesbank, whose president, Jens Weidmann, was also attending the conference in Grand Teton National Park in Wyoming.
Weidmann declined to comment to reporters about a German press report that he had considered resigning over the issue.