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Merkel Ally Fuchs Says Germany Backs Draghi With Conditions

Germany will back European Central Bank bond purchases to help overcome the euro-area debt crisis only if such an operation is limited and recipient countries agree to strict conditions, said a senior ally of Chancellor Angela Merkel.

Michael Fuchs, a deputy parliamentary caucus leader in Merkel’s Christian Democratic Union, said that Germany would oppose any ECB plan that foresaw “too much” bond buying without ensuring countries in need of help commit to overhaul their economies.

“Germany is a country which is very much afraid about inflation,” Fuchs told Bloomberg Television today, speaking in English. “We don’t want to have the ECB just buy on the market, either in the primary or secondary market,” he said. “The ECB can do it only if there are certain conditionalities, if the countries are really doing their homework.”

The remarks are further evidence that Germany will support ECB President Mario Draghi’s plan to buy sovereign debt as a way to ease bond yields in countries such as Italy and Spain so long as governments sign up to strict conditions in return and the euro-area’s rescue funds enter bond markets first. Merkel, speaking in Ottawa last month, said the ECB was “counting on political action in the form of conditionality as the precondition for a positive development of the euro.”

Unlimited Purchases

Draghi’s proposal involves unlimited purchases that will be sterilized to assuage concerns about printing money, according to two central bank officials briefed on the operation. The ECB chief is due to give a press conference in Frankfurt tomorrow.

Fuchs said Merkel’s government backed Bundesbank President Jens Weidmann, who opposes bond buying as monetary financing of state budgets. Merkel’s deputy spokesman, Georg Streiter, said Aug. 6 that the government backed Draghi and that his bond buying proposals “now has the backing of the government.”

Fuchs, asked how much backing the ECB chief has from the chancellor, said: “I have a feeling that he does not have too much support” from her. “Merkel knows that the Germans are against buying too much bonds via the ECB, because that, at the end of the day, means inflation,” he said.

Fuchs also predicted that Germany’s Federal Constitutional Court will approve the euro area’s permanent bailout fund, the European Stability Mechanism, when it decides on Sept. 12. Still, there will be conditions attached to the ESM, the lawmaker said.

“They will give us some conditions under which we can form the ESM,” Fuchs, who sits in Germany’s lower house of parliament, or Bundestag, said in the interview.

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