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Friday, September 07, 2012

The death of the Bundesbank? Germans come out swinging against ECB bond-buying

Although Jens Weidmann may have been alone on the ECB executive board in opposing yesterday’s ECB decision to buy government bonds, he looks to have the full-force of German public and media opinion right behind him. Over the last 24 hours, the German media, with surprisingly few exceptions, has fired a broadside against the ECB. No holds barred. Mario Draghi may have pleased markets, but he now has a very frustrated Germany – whose taxpayers are implicitly underwriting his institution (and the euro) – on his tail.

One of the most interesting reactions came from the Bundesbank itself, which unusually issued a public statement which ran directly contrary to the ECB’s decision. A Bundesbank spokesperson said:
Weidmann regarded the bond purchases “as being tantamount to financing governments by printing banknotes,” adding, “The announced interventions carry the additional danger that the central bank may ultimately redistribute considerable risks among various countries’ taxpayers.” 
Süddeutsche Zeiting’s Marc Beise has a blistering piece, crediting “Weidmann’s persistent opposition” as the reason why the ECB is ‘only’ buying short-term debt. But, goes on to argue, “Saving the euro is worth a lot of effort but there are two important limitations. A euro rescue at any price can be a disaster economically, that is the red line that must not be exceeded. The other limit is the law: never in a rules based community can the end justify the means. A Euro-community based on breached contracts will always be based on fragile foundations. On Thursday, the ECB has unfortunately crossed both these red lines.”

Meanwhike, Die Welt led with the headline “Financial markets celebrate the death of the Bundesbank”, adding, “For Germany, the nightmare begins. There it was: the word that everyone was waiting for: unlimited…ECB President Draghi brazenly breaks with the principles of German monetary policy.” Bild runs with a similarly eye-catching headline, warning against "Draghi's blank-cheque for debt-states".

FAZ's editor-in-chief Holger Steltzner also took a strong line, saying, “In the eurozone there isn't any division any more between monetary and fiscal policy…We should be curious to hear what the German Constitutional Court thinks about that.”

The warning on the German Constitutional Court is an interesting one (a topic we’ll discuss in future posts) but some politicians went even further, with Hessen Europe Minister Jörg-Uwe Hahn of the FDP and CDU’s Klaus-Peter Willsch (already the initiator of one of the ESM complaints to the German Constitutional Court) calling for the German government to seriously consider taking the ECB to the European Court of Justice for violating its legal mandate.

The ECB wasn’t the only institution on the receiving end though, with the German government and Chancellor Merkel also taking flak. Handelsblatt's deputy editor in chief, Florian von Kolf wrote, “Today is a black day for democracy…Merkel is silent…seemingly happy to have been partly relieved from her here Sisiphus task to save the euro”. DPA reports that SPD parliamentary leader Frank-Walter Steinmeier argued that the ECB’s decision is the “documentation of Chancellor Merkel’s failure...[while Weidmann] protests but Merkel gives the green light”, while the Green party decribed the CDU and FDP opposition as “hypocritical” since it was their failure to take any significant decisions on the crisis which forced the ECB to act.

We’ll continue to cover reaction throughout the day on the blog so stay tuned, but we can’t help but recall all those times we warned that saving the euro at any cost could drive a wedge between countries rather than bringing them closer together…


Bugsy said...

In the UK we have a saying, that it is not worth flogging a dead horse. Can someone pass this to Mr Draghi in italian.

Rollo said...

It will be either the death of the Bundesbank as we know it; or the death of the Euro as we know it. Which one would you bet on????

Rik said...

The same as you, money talks and PIGGS walk (and do not fly). You have simply no platform to base a 10 Y or so rescue exercise on. Either the North will pull the plug out of the rescues (if they start to feel the cuts in their own goodies or the South in their Euro-membership when austerity hits them to hard and fatigue sets in. Or more likely both with some timing differences.

They simply donot have their PR/Communication strategy ready.
The times of telling A in Europe and B at home are over especially for headline topics.
If you say to the markets we save the Euro, you say at the same time to the Germans you pay for it. That is what we see here.

Handellsblatt had an interesting topic on this as well btw 13% pro ECB-buying and 51% against (and a lot undecided). And Draghi well basically Draghula.

Ghollidge said...

^----- (Rollo) Germany has come through much worse and survived. This will noy be different.

christina Speight said...

This whole charade is not designed to cure the crisis - it is designed to buy time to enable Barroso, Rompuy, Draghi, and Junker to construct an escape-proof EU that is a single federal state where nations cease to have any power or independence. (See Open Europe yesterday)

This after all is for them an opportunity too good to miss -a heaven sent chance to slam the door, lock it and throw away the key. Mission accomplished - the United States of Europe is born (asa was always the prime object)

Denis Cooper said...

It would be naive to expect anything much from the German constitutional court.

This article, "An unlawful bet on the euro", has come my way:


The author is Dr Gunnar Beck, who "teaches EU Law at SOAS, University of London, is a practicing barrister and a former legal adviser to the European Scrutiny Committee of the House of Commons" and "is the author of The Legal Reasoning of the Court of Justice of the EU" which will be published next month.

He writes:

"The ESM manifestly breaches German constitutional law as well as the EU Treaties. Indeed, violations of the Constitution rarely come so clearly."


"... the diligent, knowledgeable and naive legal academic will think: If the law is clear, then the court will enforce it. His conclusion will be that the ESM Treaty should and will be struck down. Anyone who does not only know the law but something more about the law, will be less sure: he will know what the legal answer should be but is aware that the world is not as it should be, of the pressures the court is under, the fact that all members of the second senate of the court are party political appointments - all appointed by parties which have been supporting the ESM - and that courts are not in the habit of causing constitutional crises."


"The author has been told by one of those in the know - government officials, top investment bankers and CEOs, and well placed journalists - that according to trusted "highest government sources" in Germany there have been close contacts between the court and the German government - an astonishing fact itself - that the Government has been assured by the judges that the court will not stop the ESM but is likely to insist on a reservation or two and ask the federal president to attach a rider to his signature under the ESM Treaty to the effect that it is Germany's understanding that her liability under the ESM will not be unlimited."

He ends on this profoundly depressing note:

"The author hopes that this article will find at least some readers in China, Southeast Asia and in the Islamic world so that they may remember a thing or two about 'constitutional government' in the West when the Western leader arrives on their shores to lecture them about the 'benefactions' of the 'the rule of law', the separation of powers and human rights in the West."

Rik said...

When we start talking legal stuff.
The plan was leaked via GS (Goldman). Leaking as such is ok but via a party that is likely to benefit from it first, before leaking it further to the market?
Anyway it looks to me that if that (benefit) would have been done also some people at the ECB would have a case to answer (for conspiracy).

@D Cooper
The problem with German lawyers is they take a position and start to defend that. So basically what we see is some lawyers saying it is unconstitutional and others saying of course it is allowed. Totally unuseful for spectators like ourselves.
Basically the GCC has approved the earlier version of the ESM in the ruling a year ago or so. And has given rather broad criteria. From a later interview it appears with the former ESM we are basically on the border allowed not allowed.
It looks to me within that scope they can basically move either way. Also from a legal pov and not only to avoid a constitutional crisis. As apparently everybody is afraid to shoot the dead horse, more likely is an approval.
With conditions otherwise the next case can almost directly be booked in and they probably will try to avoid that as well.