AFP, DPA/Berlin
Germany yesterday dampened hopes for powerful action from the European Central Bank to fix the euro crisis and slapped down speculation of an immediate breakthrough on debt-wracked Greece.
Asmussen: A Greek exit from the eurozone will be manageable’ but ‘very expensive
European markets opened firmer yesterday following a report on Sunday in respected German newsweekly Der Spiegel that the ECB was mulling huge intervention to drive down the borrowing costs of countries hit by the crisis.
Without citing sources, Spiegel said the Frankfurt-based central bank would cap the borrowing costs of individual nations, buying their bonds in the open market to drive down these costs to below the limit set.
The aim would be to control speculation on the likelihood of the eurozone breaking up and help countries like Spain and Italy which have suffered from rapidly spiralling borrowing costs.
But a spokesman for German Finance Minister Wolfgang Schaeuble was quick to quash the report.
Martin Kotthaus told a regular government briefing he was not aware of such a plan but that “purely theoretically and speaking in the abstract, such an instrument would of course be very problematic.”
The ECB, which very rarely comments on press reports, also reacted swiftly, saying it was “absolutely misleading to report on decisions, which have not yet been taken.”
The spokesman warned it was “also wrong to speculate on the shape of future ECB interventions.”
The comments by the two spokesmen dampened sentiment on the markets, with the euro giving up earlier gains against the dollar on the foreign exchanges.
Confidence in the euro was also hit when Germany’s powerful central bank reiterated its opposition to a plan outlined by ECB President Mario Draghi earlier this month to assist countries that apply for help from the EU.
Draghi said the ECB “may” intervene to buy the bonds of countries that have applied for aid from the EU’s bailout fund and committed to tough reforms in return.
But the Bundesbank said “government bond purchases by the eurosystem should be viewed critically and entail, not least, substantial stability policy risks.”
The Bundesbank and several politicians in Berlin are concerned that buying the bonds of countries oversteps the ECB’s mandate to keep a lid on inflation and reduces the incentives for nations to make economic reforms.
Germany, Europe’s political and economic powerhouse, also poured cold water on hopes for a quick fix to Greece’s problems, as the country’s prime minister prepares to embark on a tour of Paris and Berlin to drum up support.
Antonis Samaras visits German Chancellor Angela Merkel on Friday and French President Francois Hollande the day after amid reports he will discuss with the pair a plan to extend by two years a deadline for crucial reforms in Greece.
Athens has committed to slashing some €11.5bn from its budget by 2014 but reportedly wants two further years to make the cuts as the country struggles through its fifth year of recession.
But Merkel’s spokesman Steffen Seibert said markets and observers should not get overexcited by the meetings.
“I can tell you what is not expected ... that strong positions will be laid out or significant decisions taken. That will not happen,” said Seibert, speaking of the two meetings.
“The basis for all decisions in the case of Greece is the report of the Troika,” said Seibert, referring to an assessment expected in September by international auditors on Greek reforms.
The report will determine whether Greece wins a slice of aid worth some €31.5bn to keep the government afloat and enable the country to remain in the eurozone.
ECB Executive Board member Joerg Asmussen, from Germany, told the Frankfurter Rundschau daily earlier yesterday that a Greek exit was “manageable” but would spark a growth slump and rising unemployment.
In a series of media interviews, Asmussen said a Greek exit from the eurozone would be “manageable” but “very expensive”.
Asmussen told the German Frankfurter Rundschau daily his preference was that Greece should stay in the eurozone. But he said a Greek exit “would not be as orderly as some imagine”.
His remarks also came against the backdrop of a renewed debate in Germany about Greece possibly departing the eurozone.
If Athens failed to meet the conditions as laid down in its bailout plan then “there could no longer be a place for Greece in the eurozone,” said Hans-Peter Keitel, the president of the Federation of Germany Industry said.
Der Spiegel reported on Saturday that Greece will need to slash its budget by €14bn ($17bn) in exchange for international bailout funds. This is €2.5bn more than they had originally estimated.
The amount was raised in conjunction with an audit of the country’s finances by the so-called troika comprising the European Union, the International Monetary Fund and the European Central Bank.
A spokesman for the European Commission said it was “too premature for us to comment” on any extra efforts Athens will have to make.
“The troika will return in early September to Athens to make a final assessment ... and on the basis of that assessment, it will then be for the Eurogroup to draw conclusions,” Simon O’Connor told reporters in Brussels.
Spiegel said the bank would set an upper limit for borrowing costs in heavily indebted states and then step into the markets to ensure that they did not rise above the level.