Bundesbank President Jens Weidmann’s objection to European Central Bank proposals to contain market turmoil won’t sway German backing for the ECB crisis fighting, a senior ally of Chancellor Angela Merkel said.
ECB President Mario Draghi’s “clear” announcement that he will link central bank purchases of euro-area government debt to action by the region’s rescue fund “isn’t problematic from my point of view,” Michael Meister, deputy parliamentary leader of Merkel’s Christian Democratic Union party, said yesterday in a telephone interview. “It’s very positive.”
“We don’t have a rift within Germany, we have different roles,” Meister said, when asked about Weidmann’s opposition. “I think Mr. Weidmann tries to live up to his duty of conducting a stability-oriented monetary policy and that is also very positive.”
Meister’s comments are the first from a senior German policy maker since the government gave its backing two days ago for Draghi’s bond-buying proposals, saying any such action was within the ECB’s mandate. Draghi, in his Aug. 2 announcement, “clearly addressed the primacy of politics in the euro crisis,” deputy government spokesman Georg Streiter said.
“It can’t be the job of the ECB to finance governments,” Meister said. “We’ve always respected the role of the central bank and I’ve said very often in the past that we shouldn’t give any warnings or advice to the central bank, and German politicians didn’t give any advice before the Governing Council meeting.”
Sovereign-bond-purchases by central banks to help governments are “very normal transactions,” made in the past by lenders including the Bank of England and, in the 1970s, the Bundesbank, said Peter Bofinger, an economic adviser to Merkel.
Draghi should be “more courageous,” relaunching the ECB’s Securities Markets Program and buy bonds automatically when Spanish and Italian yield spreads widen too much, Bofinger told Linzie Janis and David Tweed today on Bloomberg Television’s “On the Move.” As there is no justification for the current spreads of those countries, seeking “political permission” is unnecessary, he said.
No one at the Bundesbank press office was available for immediate comment when contacted by telephone today.
Draghi’s proposal to consider ECB purchases of government debt in tandem with Europe’s rescue fund in return for strict conditions has failed to calm bond markets. Spain and Italy, the countries at the heart of the debt crisis that emanated from Greece, have refused to say whether they plan to request aid.
Spanish 10-year bond yields rose 8 basis points to 6.94 percent as of 2 p.m. in Berlin, while similar maturity Italian debt fell a basis point to 5.96 percent. Germany’s benchmark 10-year bund yielded 1.42 percent.
Draghi’s statement that the ECB is prepared to step in to help lower borrowing costs in Spain and Italy sends a warning to investors not to speculate against the single currency, said Meister, who is also a CDU finance spokesman. He cited the example of George Soros, who made $1 billion in 1992 betting the U.K. would be forced to devalue the pound, saying similar such bets against the euro would fail.
Don’t Try It
“If Mr. Soros tried it with the British pound, he shouldn’t try it with the euro after this reference by Mr. Draghi,” Meister said. Draghi sent a message to “all speculators who think that they can speculate against the euro: My dear friends, be careful, there’s somebody in the background who may join the game and his pockets are deeper than your pockets.”
Almost three years after Europe’s financial crisis came to light in Greece, the so-called troika of international creditors -- the ECB, the International Monetary Fund and the European Commission -- is assessing the country’s progress in meeting its bailout targets.
The outlook on Greece’s CCC rating, already eight levels below investment grade, was revised to negative from stable at Standard & Poor’s yesterday on concern a worsening economy raises the likelihood the nation will need more support from European Union lenders.
While Germany has “a certain flexibility” as regards program targets, “that flexibility ends should we be asked to supply more money beyond the program,” Meister said. He declined to say whether another debt restructuring might be necessary.
IMF in Greece
The IMF will stop paying further rescue aid to Greece because it is “already clear” to the troika that Greece won’t be able to fulfil its promise to cut debt to 120 percent of gross domestic product by 2020, German news magazine Der Spiegel reported last month.
If the Washington-based fund did try to pull out of the Greek program, President Barack Obama “must adjust to the idea that the Europeans will also pull out,” Meister said. “We’ve always made clear that when the IMF isn’t on board then the Europeans will also pull out.”
If Treasury Secretary Timothy F. Geithner, who met with German Finance Minister Wolfgang Schaeuble on July 30 while Schaeuble was on vacation on the German North Sea island of Sylt, “comes to visit with deep worries about the euro, then the U.S., which has a considerable stake in the IMF, should also communicate that this would happen,” Meister said. “You can’t expect that one side will pull out and the other side will fill the gap.”
With its proposed foray into government bond-buying to bolster the 17-nation euro region, the ECB “has done what it could in terms of support,” Meister said. “The actual problems have to be solved through national and European policies.”