PARIS, March 13 (Reuters) - The European Central Bank is prepared, on a temporary basis, to buy more of some countries' debt than others if the situation warrants it, ECB policymaker Francois Villeroy de Galhau said on Friday as he defended its latest measures.
On Thursday, the ECB rolled out a new stimulus package to bolster European economies against the fallout from the coronavirus outbreak, but stopped short of cutting interest rates, putting the onus firmly on governments and sending markets into a tailspin.
Unlike the U.S. Federal Reserve and the Bank of England, the ECB held back on cutting rates and sources close to the discussion said a cut was not proposed on Thursday, even though markets had fully priced in a move.
ECB President Christine Lagarde was criticised, in particular, for saying that it was not up to the ECB to close widening spreads between different euro zone countries' bond yields, as the reaction to the comment in debt markets caused a blow out in the spreads.
Villeroy, who is also head of the French central bank, sought to reassure investors, saying that the ECB could use flexibility in its bond-buying rules to target purchases of some countries debt.
"If there are fragmentation risks we will use all of the possible flexibility, which means for purchases of public debt that we can temporarily distance ourselves from countries' capital keys and buy more of some debt and less of others," Villeroy told France's Radio Classique.
The capital keys are ECB rules that require the central bank to buy public debt in a proportion tied to the amount of capital member countries hold in the ECB.
Villeroy also said that the ECB was not blind to the volatility in financial markets but insisted that it was guided by its economic analysis.
"Our package is coherent as regards the economic analysis and is a powerful help for companies," Villeroy said.
As head of the Bank of France, Villeroy said that next week he would propose to France's financial stability council that banks be allowed to release extra capital they have been required to build up as a countercyclical buffer. (Reporting by Leigh Thomas and Sudip Kar-Gupta; Editing by Himani Sarkar & Simon Cameron-Moore)