A view of the Bundesbank building in Frankfurt. With markets primed for an ECB announcement on bond buying on Thursday, Germany’s central bank is worried that the decision would leave it on the hook for any losses.
Reuters/Frankfurt
Germany’s Bundesbank is mounting a last-ditch drive to limit money-printing by the ECB, hoping either to soften the blueprint or delay decisions on key parts beyond this week, people familiar with the debate say.
With markets primed for a European Central Bank announcement on Thursday, Germany’s central bank is worried that a programme to buy government bonds would leave it on the hook for any losses.
No final decision on the plan has been made and the Bundesbank is still seeking safeguards, including a likely move to make national central banks rather than the ECB bear much of the risk for buying the bonds of eurozone member states.
The size of the programme to buy bonds, known as quantitative easing, and a possible delay to its launch are also part of the debate.
“What exactly comes and in what dosage, that’s where the real action is at the moment,” said one person familiar with Bundesbank thinking. “It could be that the decision is taken with details to follow.”
Although the Bundesbank’s position within the ECB carries huge weight because Germany is the bloc’s biggest economy, its allies are few in number on the 25-strong Governing Council.
The ECB’s Executive Board, the six-person team that is at the core of decision-making, will meet today to prepare recommendations to the wider group including central bankers from Athens to Rome, who gather from tomorrow.
By postponing the announcement of elements of the plan, ECB president Mario Draghi could avoid a clash — at least for now — with Bundesbank chief Jens Weidmann and his supporters, but at the risk of a dangerous market backlash.
Investors are already jittery after the Swiss central bank’s surprise move last week to scrap a cap on the franc.
The ECB declined to comment.
The Bundesbank wants national central banks to bear the risk, an idea that some critics say heralds the disintegration of the euro but which may nonetheless be part of the final plan, sources have told Reuters. It also wants a limit on bond-buying.
“The Bundesbank’s position has not changed,” said another person familiar with the matter. “This would be nothing less than eurobonds by the back door.”
Speaking last week, Weidmann signalled that his critical position was unchanged.
“I think that it is likely that there will be an announcement on Thursday, with details following later,” said Francesco Papadia, the former head of the ECB’s financial market operations.
“It is in keeping with Draghi’s salami-type communication style.”
International Monetary Fund chief Christine Lagarde said QE should involve as much risk-sharing as possible.
“The more efficient it is, the more mutualisation there is the better,” she told a news conference in Dublin.
Many in German Chancellor Angela Merkel’s political camp are privately critical of a move to print fresh money, believing it can do little to lift sagging economic growth or encourage bank lending.
Nonetheless, the government would be loath to attempt publicly to put a brake on the ECB.
Merkel downplayed the likely impact of the ECB’s decision and Greek elections three days later, saying she did not view this week as one of “destiny for the euro”.
But one senior lawmaker from Merkel’s conservatives, Norbert Barthle, told Reuters he was “not convinced of the need for a massive programme to buy state debt”.
“The sensible thing would be to wait for the measures taken already to have their effect first,” said the budgetary affairs spokesman for the conservatives in the lower house.
Merkel’s spokesman Steffen Seibert declined to give details of her meeting with ECB president Mario Draghi last week.
