BRUSSELS (Reuters) - The European Central Bank should remain active on the bond market to help stabilise it, even after the European Financial Stability Facility (EFSF) gets its new powers of market intervention, the International Monetary Fund said.
The ECB has been buying Spanish and Italian government bonds on the secondary market since August as market concern over public finances in both countries threatened to push their borrowing costs above sustainable levels.
The ECB has said such action was needed to improve the transmission of its monetary policy decisions, but many economists expect the bank will stop intervening on the market when the EFSF gets new powers allowing it to take over that job.
"The ECB has a very important role to play in restoring stability in markets in Europe," the head of the IMF's European department Antonio Borges told a news conference. "It is not possible to have a monetary union where debt markets have the extraordinary volatility that they have today."
He said the ECB should not bail out overspending governments but smooth out market swings. "A steady intervention in markets to stabilise conditions would be most appropriate," Borges said.
Euro zone governments could think of a way to make such operations more palatable for the ECB, whose statutes forbid it to finance governments.
"If that requires that the ECB be given a degree of support on the part of treasuries throughout Europe, to provide additional comfort to do it more easily, we would certainly be happy to see that happen," Borges said.
"There are many ways of doing this -- it could be just a guarantee on the part of several treasuries, it could be the EFSF, there are many ways -- the important thing is to make it easier for the ECB to have a steadying presence in the markets," he said.
(Reporting By Jan Strupczewski; Editing by Ruth Pitchford)
