Schaeuble Warns Against Expecting too Much of Draghi’s Plans

German Finance Minister Wolfgang Schaeuble
German Finance Minister Wolfgang Schaeuble said, “It has to remain very clear, state debt can’t be financed through monetary policy. Therefore we can’t have a decision - we would think it very wrong - that’s not covered by the ECB mandate.” Photographer: Jock Fistick/Bloomberg

German Finance Minister Wolfgang Schaeuble warned against placing too much faith in the European Central Bank’s bond-buying plans as pressure grows on Spain and Italy to decide whether to seek help to lower borrowing costs.

Whatever proposals ECB President Mario Draghi announces on Sept. 6 must fall within the central bank’s mandate, Schaeuble said in an interview today on Deutschlandfunk radio. Germany won’t accept ECB financing of state budgets, he said.

“We have to be very careful that we don’t raise false expectations,” Schaeuble told the broadcaster in Berlin. “It has to remain very clear, state debt can’t be financed through monetary policy. Therefore we can’t have a decision -- we would think it very wrong -- that’s not covered by the ECB mandate.”

European leaders are awaiting the details of the ECB’s plan and a German high-court decision next week that will determine whether policy makers have the bailout funding required to tackle the euro crisis almost three years after it emerged in Greece. The stakes for those countries at the heart of the contagion were underscored last week when Spain’s government said it will inject emergency funding into Bankia group, its third-largest lender, which posted a first-half loss.

‘Robust Will’

Spanish Prime Minister Mariano Rajoy reiterated over the weekend that his government will wait to see what the Frankfurt-based ECB unveils before seeking assistance to address rising bond yields. Draghi said Aug. 2 that any ECB action would be conducted in tandem with the region’s rescue funds and depend on governments agreeing to strict conditions.

Spain’s 10-year yield slid 2 basis points to 6.84 percent as of 12:50 p.m. in Madrid after climbing 44 basis points last week. The euro was little changed at $1.2572.

“Draghi’s announcement of intervention shows the robust will of the ECB to solve the problem,” Rajoy told Spain’s ABC, Germany’s Bild am Sonntag, France’s Le Journal du Dimanche and Italy’s Corriere della Sera in a joint interview published over the weekend. “I will await the results of the ECB and then make a decision that’s good for Spain and for the euro.”

Germany reiterated its support for Bundesbank President Jens Weidmann, following reports last week that he’d considered resigning over his opposition to ECB bond purchases. Chancellor Angela Merkel’s spokesman, Steffen Seibert, referred to a report in Der Spiegel that he’s staying on the job.

“He’s staying in office,” Seibert told reporters today in Berlin. “That’s our position.”


Finance ministers are also struggling to agree on a plan to help integrate the banking sector of the 17-member currency union by placing the bloc’s bank supervision in the hands of the ECB. Schaeuble took issue with European Commissioner Michel Barnier, the EU’s financial services chief, who said last week that he wanted the supervision to be in effect from next year.

“I think that’s a bit unrealistic,” Schaeuble told Deutschlandfunk, saying that he was “surprised” as euro group ministers hadn’t yet discussed the draft proposal. “It’s always this way -- there’s an interview and the media jump on it and then expectations are raised that can’t be met,” he said.

The so-called banking union is a condition for enabling the euro bailout funds to finance banks directly, offering the prospect of breaking the link between ailing credit sectors and the sovereign-debt market that’s driving the crisis.

Court Decision

Bailout funding will be on hold until Germany’s Federal Constitutional Court decides on Sept. 12 whether to suspend the euro-area’s permanent rescue fund, the European Stability Mechanism. Only with its endorsement can the legislation be approved and the 500 billion-euro ($628 billion) ESM go into operation.

The ECB’s bond plan would also be held up without bailout money, since any scheme would involve central-bank intervention working alongside joint funding to ease yields. The ECB’s Executive Board will send a list of options to the 17 governors tomorrow, a day before the Governing Council convenes in Frankfurt, three central bank officials said Aug. 31.

Options under consideration include sovereign-bond yield caps and targets on spreads over German bunds, the officials said. One said there has also been discussion about making purchases in a range of asset classes and not just government bonds. An ECB spokesman declined to comment.

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