German chancellor candidate Peer Steinbrueck said Europe’s crisis management is hostage to banks and big investors, while declining to reveal whether he favors further writedowns on government bonds.
Steinbrueck, the Social Democratic challenger to Angela Merkel in the September election, said a decision to rule out further haircuts reflected “blackmail” by bond investors who lost money in the Greek writedown, the biggest in history.
Steinbrueck declined to say how he would handle the bond market, telling reporters in Brussels today that there is a widespread view the Greek treatment sent a “highly dangerous signal to private investors. But I’m citing opinions I’ve come across and you can’t interpret this as my opinion.”
With elections on Sept. 22, Steinbrueck is trying to turn his experience as a former finance minister into popular support and close a poll lead of as much as 18 percentage points held by Merkel’s Christian Democratic bloc.
The Greek case left the European Central Bank as the principal backstop for the bond market, Steinbrueck said. In a nod to German opinion, he questioned whether ECB President Mario Draghi went too far in pledging unlimited debt purchases, though didn’t give an answer.
“Who is left to buy the government bonds? The central bank,” Steinbrueck said. “The question that can justifiably be asked is whether this is in line with the ECB’s mandate.”
Steinbrueck echoed Merkel’s approach to a bailout for Cyprus, calling for a package that forces Cyprus to clamp down on money laundering, shrink the banking sector, deal with its low corporate tax rate, and sign up to a European financial transaction tax.
The finance minister in Merkel’s first coalition from 2005 to 2009, Steinbrueck also backed the current German policy of opposing a European-wide deposit insurance fund since that could force German savers to clean up banking messes elsewhere. Likewise, he opposed using the European rescue fund to directly recapitalize banks.
Steinbrueck got out in front of Merkel’s government by calling for extra time for France and other recession-hit countries to reduce their budget deficits, instead of waiting for the European Commission to issue a ruling. The commission’s economic forecasts are due on Feb. 22.
“The therapy is very one-dimensional and it is save, save, save,” he said. “This doesn’t mean it is wrong. I think there has to be budget consolidation. But the question is the dosage.”