Draghi Takes Pitch Into Lion’s Den as German Faith Wavers
Mario Draghi is taking his sales pitch into the lion’s den.
By appearing before a joint session of three committees of the German parliament in Berlin today, the European Central Bank president is seeking popular support in Europe’s largest economy for his plan to purchase government bonds to stem the debt crisis. While Draghi says his so-called Outright Monetary Transactions are required for price stability, some German policy makers say they are an affront to the monetary orthodoxy upon which the ECB was founded.
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“Draghi is on a mission to smooth concern that OMT won’t send inflation skyrocketing or lumber German taxpayers with liabilities they can’t pay,” said Frank Schaeffler, finance spokesman for the Free Democrats, who are in coalition with Chancellor Angela Merkel’s Christian Democrats. “Many lawmakers -- even if they don’t admit it -- have grown suspicious of the ECB and its head, once dubbed the most German of non-German central bankers.”
While the announcement of Draghi’s yet-to-be-deployed bond- buying program has calmed financial markets, Germany’s revered Bundesbank has openly opposed the plan, fanning concerns among politicians and the public. Some 42 percent of respondents to a Stern survey published Sept. 6 said they had little or no trust in the ECB president, compared with just 18 percent who judged him favorably.
Draghi will brief members of the Budget, Finance, and European Affairs committees plus any other “interested representatives” in a closed session from 1:45 p.m., according to a statement released by the parliament. A press conference on the roof terrace of the building is scheduled for 4 p.m., weather permitting.
European governments are working to draw a line under a crisis that is now entering its fourth year and has prompted five of the 17 euro-area countries to seek bailouts. Bailed-out nations should be in a position to finance themselves in the market again by the end of 2014, Klaus Regling, head of Europe’s permanent rescue fund, said in an interview yesterday.
Draghi’s crisis response is being criticized on both sides of the political fence in Germany, said Christian Schulz, an economist at Berenberg Bank in London.
“On the conservative side there is the belief that countries should be responsible for themselves and the ECB certainly shouldn’t be taking over the risk,” he said. “On the left they want a democratically legitimated instrument to end the crisis, not the ECB.”
The Bundesbank -- a bastion of stability for Germans after its iron grip on prices after World War II banished memories of 1920s hyperinflation -- has led opposition to Draghi’s bond- purchase plan. Its president, Jens Weidmann, says the program is tantamount to financing governments by printing money, which is prohibited by the ECB’s founding treaty.
German discontent with ECB measures intended to stem the spread of the debt crisis has festered since the bank’s first foray into bond markets in 2010. That program, which has since been terminated, prompted then-Bundesbank President Axel Weber and ECB chief economist Juergen Stark, a former Bundesbank vice president, to resign in protest.
Draghi’s plan foresees that the ECB will only buy a government’s bonds on the secondary market after it has agreed to economic reform measures set out by euro-area finance ministers and the International Monetary Fund.
Even as the Bundesbank has been vociferous in its objection, Merkel has backed the plan and asserted that it isn’t outside the central bank’s mandate.
“If the OMT is implemented as strictly as has been agreed, then it is a good, stabilizing measure to flank our rescue mechanisms,” Michael Stuebgen, the Europe spokesman for Merkel’s party, said in an e-mailed response to questions. Still, there is a need for an “exchange of information” between the parliament and the ECB, he said.
“My question to Mr. Draghi is to what extent he sees his independence threatened by the bond-buying program,” Norbert Barthle, budget spokesman for Merkel’s Christian Union bloc in parliament, told reporters yesterday. “He’s saying that he’ll only buy bonds that are under the rescue shield, but the rescue shields are decided by parliamentarians. That’s not entirely independent.”
Since the announcement of the plan, Draghi has attempted to win the support of the German public. Addressing a conference of business leaders on Sept. 25, he said he has “enormous respect for the Bundesbank.”
At the same time, he criticized what he called the Bundesbank’s “no-to-everything” stance, saying “the greatest risk to stability is not action, it’s inaction.”
“It’s very important for Draghi to be in constant communication with the Germans,” said Irwin Collier, Professor of Economics at the Free University in Berlin. “It’s very important to keep them onside, or at least ensure they’re not actively trying to cut him off at the knees.”
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