ECB Defies Germany With Unlimited Bond Buying Plan

By: EW News Desk Team   Date: 7 September 2012

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07 September 2012

In the European Central Bank’s (ECB) strongest commitment to date to tackle the European debt crisis, ECB President Mario Draghi pledged on Thursday to buy unlimited amounts of government bonds from struggling economies, though he admitted that there had been some dissention on the ECB board for the initiative.

"We will have a fully effective backstop to avoid destructive scenarios," told Draghi to a press conference, while outlining the plan. The ECB will offer to purchase eurozone countries’ short-term bonds in the secondary market in a programme dubbed “Outright Monetary Transactions”, or OMT, which it hopes will address “distortions in financial markets”.

“We are in a situation where a large part of the euro area is in a bad equilibrium, where you have self-fulfilling expectations that feed upon themselves and generate very adverse scenarios. There is a case for intervening to break these expectations,” the ECB chief added.

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But according to the Financial Times, there had been some opposition to the plan within the ECB, with most political observers believing it to be Deutsche Bundesbank president Jens Weidmann.

Weidmann had previously asserted that such bond purchases were “tantamount to financing governments by printing banknotes,” while the Bundesbank also made the unusual step of commenting publicly immediately after Draghi’s declaration that “the announced interventions carry the additional danger that the central bank may ultimately redistribute considerable risks among various countries’ taxpayers.”

“To fly in the face of Germany’s wishes will not have been easy,” said Ranvir Singh, CEO of the market analysts RANsquawk, to The Telegraph. “For the Bundesbank, keeping inflation in check is an article of faith. Its president has made no secret of the fact that he regards the ECB plan to buy the debt of the Eurozone’s weaker members as the road to perdition.

“But Mr Draghi had left himself little option. Having earlier promised to do ‘whatever it takes’ to save the Euro, the markets had expected nothing less than a definitive rescue plan,” Singh believed.

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Draghi himself conceded that there was one "no" vote to the OMT programme, though he was reluctant to name the dissenting voice.

"I will leave you to guess who that was,” Draghi told reporters.

Besides Weidmann, other German politicians have spoken up against the plan.

"If we start wanting to resolve the problems of financial policy through the more convenient means of monetary policy, we will have a problem," said German Finance Minister Wolfgang Schaeuble to Reuters.

"Central banks are autonomous so that the more convenient path of printing money is barred to politicians," Schaeuble said.

And Germany’s Economy Minister Philipp Roesler warned: "It is all the more important to attach conditions to the current temporary bond purchases and to lay out as quickly as possible the exact nature of these conditions for individual countries."

According to a poll cited by MoneyControl, 42 percent of Germans said that they have little or no trust in ECB President Mario Draghi.

Some 18 percent said they held Draghi in esteem, while a further 31 percent said they did not know him and 9 percent had no opinion.


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