WRAPUP 1-ECB blanks Ireland fears to keep eyes on exit path

* Two board members bolster expectations of ECB exit

* Clearing house Ireland margin hike adds new headache

* Weber says euro will ride out crisis

By Marc Jones and Paul Carrel

FRANKFURT/BERLIN, Nov 25 (BestGrowthStock) – European Central Bank
policymakers brushed off the rebound in debt market tensions on
Thursday, saying the bank’s plans to scale back its crisis
support remained unaffected by the ongoing turmoil.

The ECB will say next Thursday how much of its crisis
support –mostly ultra-easy loans for banks– will remain in
place beyond mid-January.

Analysts continue to expect it will limit its three-month
lending but doubts have creept in as debt market tensions engulf
Ireland and other high-debt euro zone members refuse to go away.

“The (euro zone) banks are much more stable and able to get
their own funding. They are relying less on the European Central
Bank. This is an important message,” ECB Executive Board member
Gertrude Tumpel-Gugerell said in an interview published on
Thursday. [ID:nWEA1651]

The premium investors demand to hold Irish debt climbed back
to just shy of a record high on Thursday (IE10YT=TWEB: ) as
Ireland’s plans to cut its debt were overshadowed by doubts over
the weakened government’s ability to see the measures through.

Speaking to reporters in Hamburg, ECB Vice President Vitor
Constancio also bolstered expectations the ECB will press ahead
with its exit plans amid the ongoing problems.

Asked whether the Ireland crisis would impact the ECB’s exit
strategy, he said: “The two things are not connected of course.
Monetary policy is decided in terms of the overall situation of
the euro area.”

Yves Mersch struck a similar tone on Wednesday. “We only can
welcome that now that we have a programme that will lead to
stability in Ireland, this will allow us to continue on our
gradual and prudent exit strategy.”

“I would not take issue with the expectations that are
presently in the market,” he said.

PENALTY KICK

Money markets remain at the heart of the ECB’s efforts to
fight off the financial crisis.

It is becoming increasingly impatient with banks reliant on
its crisis loans. As long as it has unlimited cash on offer to
prop them up it cannot control the key money market rates that
relay its core interest rate policy.

There was a fresh blow on Thursday when European clearing
house LCH.Clearnet hiked the margin requirement it imposes on
Irish sovereign debt for the third time this month to an
eye-watering 45 percent. [ID:nLDE6AO0AB]

The move is likely to complicate the ECB’s attempt to wean
weaker banks off its liquidity life support. Higher collateral
requirements at clearing houses push funding-hungry banks back
in the direction of the ECB.

ECB data suggests money markets are tensing up again. Demand
for three-month ECB loans was higher than expected on Wednesday
while use of its emergency overnight lending facility has been
consistently elevated for the last week.

Trading in overnight markets (EONIA=: ) has also dropped by
about a third in the last month as rate volatility has returned.

CENTRAL BANK DIVERGENCE

As well as announcing plans for its support measures next
week, the ECB’s in-house economists will publish a new set of
growth and inflation forecasts.

Tumpel-Gugerell said euro zone growth had topped
expectations in recent months and pointed to increased optimism
in economic surveys.

She also stressed the difference in policy direction between
the ECB and its U.S. counterpart the Federal Reserve.

“Each central bank has to take measures it sees as
adequate,” Tumpel-Gugerell said, referring to the Fed’s move
this month to pump an additional $600 into the U.S. economy.

“We (ECB) are in a period where we don’t think we would need
additional measures.”

Speaking in Bratislava, Slovakia’s ECB Governing Council
member, Klaus Makuch, played down Ireland’s troubles and the
recent slump in the euro.

“The Irish issue is not pleasant, but it can be solved,”
Makuch told a business conference. “The euro is slightly
overvalued, no drama, it hit a two-month low,” he added.

Influential ECB policymaker Axel Weber also sought to calm
fears Ireland’s problems could spread into Portugal and Spain.

“It is very unlikely that Spain will need help,” Weber said
at an event in Berlin, also stressing that Portugal’s problems
were of a different type to Ireland’s banking sector woes.

Weber said on Wednesday he expected the euro to survive the
current turmoil, while he believed euro zone states could come
up with more money in the unlikely event the bloc’s existing 750
billion euro safety net ever proved insufficient.[ID:nLDE6AN28M]
(Reporting by Marc Jones; Editing by Catherine Evans)

WRAPUP 1-ECB blanks Ireland fears to keep eyes on exit path