Heretofore, the Northern bloc countries, most importantly Germany, have firmly opposed ECB bond buying out of concern that it would lead to their bugaboo, hyperinflation. But now that the Eurozone is teetering on the verge of a full blow crisis, German politicians appear to be relenting. Per Bloomberg:
Members of German Chancellor Angela Merkel’s coalition parties signaled they won’t stand in the way of European Central Bank chief Mario Draghi’s plan to buy government bonds.
The envisaged move to purchase troubled euro states’ government bonds is “a wise middle way” to solve the region’s debt crisis, Elmar Brok, a European Parliament lawmaker and executive-committee member of Merkel’s Christian Democratic Union party, told Deutschlandfunk radio today.
Norbert Barthle, CDU budget spokesman, said that German lawmakers will have veto rights over bond purchases by the euro- area’s rescue funds, which would operate in tandem with the ECB under Draghi’s proposal. The temporary fund “was created for a purpose and bond-buying is in the manual,” Barthle said yesterday by phone.
This is consistent with Ed Harrison’s call, which is that what the Germans cared about most was the periphery countries knuckling under and accepting more austerity. If any of the PIIGS accept more funds from the rescue facilities, it will be subject to a Memorandum of Understanding, which will strip them of much of their budgetary autonomy. Or to put it more bluntly, it will make them increasingly subject to the control of Germany and the surplus nations. So ECB bondbuying in isolation still appears to be subject to the pols’ disapproval, while in tandem with the rescue facilities, may be deemed to be acceptable. But notice this shift in stance is basically a very big trial balloon. Neither the finance minister Schaeuble or Merkel have come out and said the policy has changed, so this shift is looking likely but is not yet confirmed.
Note that the German government makes this change official, it’s a major shift, since it would allow the ECB to use its unlimited firepower along side the rescue facilities.
But the Bundesbank has not given ground:
Handelsblatt, in a front-page article, focused on the “isolation” of Bundesbank President Jens Weidmann, whom Draghi signaled was the only Governing Council member to oppose the bond-buying plan. The business newspaper said that Merkel is distancing herself from Weidmann, her former chief economic adviser, and asked: “How long can he hold out?”
We’ll find out in the coming weeks….