German Unease With ECB Simmers as Anti-Euro Party Gains

Lawmakers from Chancellor Angela Merkel’s party are criticizing European Central Bank policies as a German anti-euro party gains support before elections across Europe this week.

Misgivings by Finance Minister Wolfgang Schaeuble about the ECB’s threat of unlimited bond-buying and Merkel’s warning of “deceptive calm” in financial markets are the latest signs that German policy makers and economists don’t want to discount the lingering risk to taxpayers from the debt crisis.

As polls suggest the anti-euro Alternative for Germany may win as much as 7 percent of the German vote for the European Parliament on May 25, members of Merkel’s Christian Democratic Union in the Bundestag, or lower house, questioned the underpinnings of ECB President Mario Draghi’s pledge in July 2012 to do “whatever it takes” to save the euro.

“The Bundestag would certainly have major concerns to clear the way for unlimited bond purchases by the ECB,” Norbert Barthle, the budget spokesman for the Christian Democrats in parliament, said by phone. “I said back then that the ECB is making itself strongly dependent on political decisions” because lawmakers in Berlin would have a say in the process if the central bank ever decided it wants to buy a euro-area country’s bonds as part of an aid package, he said.

Bond yields in euro countries from Spain to Greece have plunged since Draghi’s announcement, easing the debt crisis that spread from Greece in 2010 while stoking criticism in Germany that the ECB risks illegally bailing out governments.

Schaeuble’s Signal

Schaeuble signaled in April that Germany wouldn’t back Draghi if he tried to activate the Outright Monetary Transactions bond-buying plan, which hasn’t been used. The program is under review by the European Union’s highest tribunal after Germany’s constitutional court expressed doubt about its legality in a split vote on Feb. 7.

“I told Draghi: OMT -- we won’t create the preconditions,” Schaeuble said in response to audience questions at an event in the western city of Bielefeld on April 30. “It can only happen unanimously.”

“You won’t be able to build a bridge between financial and monetary policy without violating” EU law, Schaeuble said he told Draghi.

The yield premium on Spanish 10-year bonds compared with similar German debt, which soared to more than 6 percentage points before Draghi’s pledge, was 156 basis points at 3:57 p.m. in Berlin. Italy’s 10-year yield fell five basis points to 3.21 percent. Spain’s dropped five basis points to 3.04 percent.

Bond Market

Draghi told German lawmakers in April that the ECB may embark on so-called quantitative easing if needed. That’s a “politically-challenged policy that will not be easy to implement, and you can see that from criticism received from Germany on unlimited bond buying,” said Alessandro Giansanti, a senior rates strategist at ING Bank NV Amsterdam.

The ECB chief linked his 2012 pledge to buy government bonds of troubled euro-area countries to approval of an aid program by the European Stability Mechanism, the euro area’s permanent rescue fund. For the ECB to step in, ESM programs must include the possibility of primary-market purchases of government bonds, the bank said on Sept. 6, 2012.

“Schaeuble could say: As an ESM governor I’m willing to help a country requesting assistance, but I insist that primary market purchases aren’t part of the program,” Bert Van Roosebeke, head of department financial markets at Freiburg-based Centre for European Policy, said May 19 by phone.

Keeping Control

So far, no euro-area rescue program has included the prospect of ESM government bond purchases on the primary market, so for one to exist “we would have to approve it first,” Schaeuble told Bloomberg News after the Bielefeld event. As a result, the ECB’s conditions for possibly buying bonds on the secondary market haven’t been met.

Since German participation in ESM aid programs requires a Bundestag vote, that threat “is a trump card” that Schaeuble can play, Klaus-Peter Willsch, who has voted against Merkel’s euro crisis policies in parliament, said by phone on May 16.

“Merkel and Schaeuble are probably trying to tell voters that Germany did the right thing in the crisis but that they never let control slip out of their hands,” Hendrik Enderlein, a political economist at the Berlin-based Hertie School of Governance, said by phone yesterday. Schaeuble “can say it more bluntly because he knows there is no immediate need for the OMT to be activated.”

Scrapping Euro

Alternative for Germany, known by its German acronym AfD, is calling for an immediate end to the OMT program, a ban on ECB bond-buying and an orderly dissolution of the euro area.

The party was founded last year before national elections on Sept. 22 in which Merkel, after throwing German support behind bailouts for five euro-area countries, won the biggest victory for any party since German reunification in 1990. AfD won 4.7 percent in last year’s federal vote on the first try, missing the 5 percent minimum for winning Bundestag seats.

For the European election, support for the AfD is between 6 percent and 7 percent in 10 voter surveys since March 14 by four German polling companies. Merkel’s Christian Democratic bloc has 38 percent, her Social Democratic junior coalition partner has 27 percent, the Greens 11 percent and the anti-capitalist Left 8 percent, according to a May 13-15 Forschungsgruppe Wahlen poll for ZDF television.

Merkel’s Message

“The ECB is violating the ban on monetary state financing to the detriment of savers and pensioners in all euro countries,” AfD head Bernd Lucke told a party convention in March. “At the same time it is responsible for low interest rates” that “erode our wealth and pensions,” he said.

That clashes with Merkel’s message to voters on her 14-city campaign swing through Germany in May.

“I’ve been criticized very often, but look at where we are today,” she told supporters in the eastern city of Eisenach on May 12. “We’ve managed to return confidence to Europe.”

(Updates with bond strategist’s comment in 10th paragraph, expands Schaeuble comment in 13th paragraph.)
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