German Pols Softening Stance on ECB Bondbuying

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….

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    1. Jim

      Many Europhiles couldn’t care less about the German justice system. They argue that the collective Euro experiment takes priority over the judicial system of any given country.

      Who would have believed two decades ago that the UK would emerge as the premier country of the continent of Europe. And all because it opted to distance itself from the ill-fated Eurozone.

      1. jake chase

        Anyone who understands the benefits of enabling financial fraud could have predicted it. The UK is the new Switzerland and they don’t even make chocolate.

      2. Maju

        Don’t dream awake, Jim, please: Britain is badly hurt economically and largely for the same reasons as Spain or the USA: a brutal housing bubble (which Germany decided not to allow). Britain had exactly 0% growth in the least four quarters! It’s not as bad as Southern Europe or the Netherlands but much worse than France, Germany or most other Eurozone states (see:

        Other non-Eurozone states in deep recent slumps are Czech Republic and Hungary. While some NE Eurozone states (Finland, Estonia and Slovakia) are doing outstandingly. If you should wave a non-Eurozone state performing well in recent GDP growth terms you would have to choose Latvia – but then Latvia is just recovering a tiny bit of what it slumped previously.

        Oustide of the Eurozone is not usually better than inside, believe me – or rather: believe the factual data.

      3. Robin Hood

        Ah yes. Great Britian. That’s the place where you can total up sovereign, corporate and private debt and arrive at the highest debt/gdp ratio in the entire world!

        The place that, arguably, has the most crooked financial system in the world – although there is lots of steep competition.

    2. Yves Smith Post author

      The word I have gotten from a source who has spoken to German jurists (obviously not members of the Constitutional Court) is they expect the injunction to be lifted on Sept 12, even if it takes a tortured and narrow decision to do that. Germany judges aren’t swayed by popular opinion and tend to think in technocratic terms.

      Also, to Jim, you are wrong on this. The ESM is not operational until/unless all the members sign the treaty. Not having the ESM functioning next month would be a market freakout event.

  1. JGordon

    While the German politicians may understand the great benefits printing unlimited amounts of money and gifting it to the periphery would bring to the rich German politicians and the rich executives of their decrepit banks, they are probably worried that the German people would in short order find a whole new crop of politicians if they explicitly endorsed that position.

    Anyway, all this is just conjecture. The fact remains that the Euro is in its death throes and nothing will save it.

  2. craazyman

    They will bail. Seriously if Mr. Weidmann would invest a big chunk of BuBa assets in PIIGS ETFs — like EWI, EWP, GREK — he’d have a double win. The first win was the vendor financing scheme that plumped up his banks and the second win would be a faultless dodge that escapes the blowback from it. It would be a work of art. But the Germanic mind is not that subtle, unfortunately. It tends toward ideological stridency and monastic absolutism, when what is most needed is pragmatism and opportunism. And besides, if you’re long Spain, Italy and Greece, you can persuade yourself austerity may not actually be the best thing in the world. Funny how perceptions change, even when the facts stay the same. You can’t do that with math. haha.

    1. Robin Hood

      This is when we find out if Deutschbank runs Germany, or if Germany is the last educated democracy on Earth.

  3. F. Beard

    The ECB should be forced to hand out money to the entire Eurozone:

    1) It would fix everyone.

    2) Every banker in Europe would have a heart attack:

    “Bu, bu, bu money can’t be given away! It must be loaned into existence!”

    It’s a two-fer. What are they waiting for?

  4. Jim

    As progressives, shouldn’t we denounce any type of ECB bondbuying? After all, the ECB explicitly promised the German voter that it would never monetize debt. And just a few weeks ago, a published poll showed Euro aversion at its highest level ever in Germany.

    Don’t Germans know what’s best for them. Shouldn’t we respect democracy.

    What I find disconcerting is that so many progressives who took the Fed/Bernanke/Geithner/Obama to task for their “transgressions” are applauding the same kinds of transgressions in the Eurozone. Bernanke and Geithner said that the system was about to implode, so they had the right to take whatever action was necessary. Yet, many progressives didn’t believe them.

    Yet, when Draghi says the same, many progressives yell, do whatever is necessary to save the system, even if you need to sacrifice democracy in the process.

    1. Maju

      Your concept of “progressive” is totally different from mine, Jim: you seem an ultraliberal hooligan of those who would kiss Pinochet’s hand (I think they call them “libertarians” in the USA but for me a libertarian will always be an anarchist).

      For me “progressive” is the same as leftist and means that social well being comes first from anything. Social well being of all European citizens (which I am and you are not, Jim, right?) and not just some privileged ethnic minority like Germans.

      1. Jim

        Maju, then a progressive, as you define him, would not have had any problem with any of the actions taken by Bernanke/Fed/Bush/Geithner to ensure that the system did not implode, to ensure that the “social well-being” came first.

        What about Barofksy, who opposed many of Geithner’s plans to “save the system” and ensure the “social well-being”. Was Geithner right to call him out in a profanity-laced tirade?

        Ironically, Maju, your definition of a progressive would be far more tolerant of Pinochet than mine. After all, weren’t many of Pinochet’s economic reforms implemented without democratic legitimacy, done so, according to the University of Chicago grads who did his bidding, to ensure the “social well-being”.

        1. Calgacus

          Jim, the German politicians & voters don’t get to make 2 + 2 = 5, no matter how much they want it to be, how many absurdities they’ve been told. The Eurozone will cause massive economic destruction, including to Germany, if the existing fiscal transfer mechanism to Germany is not countered by explicit fiscal “transfer” mechanisms to Greece et al. Which again, would magically provide a free lunch of uninflated Euros to Germany & real wealth & employment to Greece. Win-win for everybody.

          The German politicians were the ones that screwed and opposed the German voters. What the German voters wanted was to keep the Mark, and stay out of the Euro, like most voters, everywhere, against the disgusting schemes of the monstrous technocrats. The Euro demonetized German debt. Not as much as it demonetized other Euro debt, true.

          But with the Mark, with German monetary sovereignty, German debt was already always completely monetized, no matter how much crack-brained, innumerate “economics” said it was not. What Germans wisely want is their own monetized debt system, not demonetized debt in a wacky bizzarro world Euro system.

          A Eurozone without “monetized debt”, without “transfers” is just a merciless, destructive war of the rich on the poor that has no non-sadistic benefit to anyone, and no disinflationary strengthening of anybody’s Euros or debt either. A Euro with transfers, with ECB bond buying is much more like the good old Mark than the current Euro. All the beliefs in the world don’t change this basic economic fact.

        2. Maju


          It’s Neoliberal economic policies what unifies them.

          Economically speaking it is that way. I do not understand the rest of what you say, it seems full of semi-private clues only right-wing ultraliberals may understand.

        3. Calgacus

          Maju, the problem is that Jim operates dogmatically from a mainstream / commodity money / neoclassical framework, where the ECB buying bonds, printing money etc will dilute the Euro & rob the thrifty Germans. Of course this theory makes as much sense as 2 + 2 = 5, but a lot of people vaguely believe in it, faute de mieux.

          But he is pointing out a real problem. Too many Germans have been brainwashed into this innumeracy, abetted by Orwellian rewriting of their own economic history.

          Taking three choices (A) The Mark (B) The current trainwreck Euro (C) A sane Euro, with fiscal “transfers”, with ECB bond support: Jim & these Germans believe that (C) the sane Euro would be inflationary, rob them of wealth & donate it to the lazy periphery, so the trainwreck (B) is better & closer to the good old mark (A).

          This innumerate belief is widely held though, enough to create a real problem of democratic will against a sane Euro. A sane Euro might have to be imposed against the will of many Germans. In reality of course, the sane Euro would be a normal “always monetized” currency like the old Mark, is much more like the Mark than the demonetized, unstable trainwreck these people think is better.

          But Germany, backed by many Germans, may insist on insane policies for the Euro, that harm everyone else & Germany too, as long as it stays in the Euro. So either Germans have to learn some accounting & economics, or they should leave the Euro, benefitting themselves & everyone else.

          1. Maju

            I honestly think that Germany should return to the mark and let the euro for Southern Europe and Ireland. I also think that the office of Central Bankmaster (i.e. Draghi) should be under the direct control of the European Parliament, only that way democracy can exist in relation to monetary policy.

            The EU has many ways to block solutions but it has always in the past gone through all similar problems by consensus forging. However there was never such a reactionary and nationalist-imperialist German leadership like this one of Merkel and Schauble, whose closest historical reference is so painful that it’s unmentionable.

            Germany has to decide: to be part of Europe or to be an island. It can’t be an island but it has chosen that path. Whatever happens in the rest of Europe, Germany will not land on its feet from this one unless it changes course very radically – and it is already too late.

  5. jake chase

    Its all Kabuki. The hyperinflation bugbear is just nonsense, very much like America’s fiscal cliff. Deflation is the real danger, and every politician, Eurocrat and corporate poohbah knows it. They will do their best to impose austerity on the PIIGS, but in the end the ECB will buy the bonds.

    1. Richard Kline

      So jake, that’s been my view since long, as twere. The ‘crisis’ is a) an excuse to fiscally kneecap regional partners the surplus ‘zones’ don’t like, and b) a marvelous speculative opportunity for capitally supported players to bet against the public bonds of said politicl entities. In the end, some Euro-public entity was going to buy up enough of those ‘internee’s’ bonds to beat back the speculators and support business as [newly] usual. That quasi-publican could be either 1) a special purpose entity, which the Germans absolutely abhor, 2) the ECB which the Germans don’t in the least trust, or 3) the Bundesbank which whe Germans wouldn’t on their dead grandmothers’ tombs permit.

      Pretty easy to see the end gamej, in the ‘crisis’ opportunity. The only question since forever has been how long Merkel and her co-dependents would futz around before waving the thing on through. Certainly long enough to improve her electoral standing from cretinous (a year ago) to doughty (as of now). I, personally, can’t even bother to read the daily spiel on all this because there is only one way out of the minefield; the one with the big, white[field] flag over it.

      And from my own perspective, I find the timing in all this of macro-cyclical interest. The bog-and-slog on berming up the Euro has been an event of ‘moment.’ In this case, a form of muddle and slough kind of moment when things sag and veer and slide about with seeming (and often actual) incompetence and fecklessness of a high order. That moment, as I model it, had a timeframe of (July 11) – Jan 12 — July 12 – (Jan 13), with the outer date points as the attenuation of effect and the inner pair as the nominal maximum. And as that model implies, having wallowed and wavered from the ‘event horizon’ of that moment, we get a deflection _of primary behavior_ coming out of the duration of maximum effect. There is stable, mass cyclicality at work in these actions IRRESPECTIVE OF THE CONTENT OF THOSE ACTIONS. The takeaway on what I mean by that is, don’t confuse how the process _looks_ with what the trend _MEANS_.

      The trend of decisions was always going to get us to govenment bond bailuouts to support the euro. And that is, by the implication of the actions discussed in Yves’ post, now where the policy course is begining to home in.

  6. stevefraser

    I’m with Jim….EuroSocialists have never cared about standing laws anywhere, sort of like the Progressives in the USA.

  7. Maju

    I was wondering which was the real cause behind the sudden rise in the Madrid stock market (c. 6%) and this is probably it.

    According to some of our TV opinion manipulators (I mean “news anchor”, specifically Matías Prats in Antena 3), the real reason was that Spain’s viceroy Mr. Rajoy had spoken (the usual nonsense and babbling for what I could discern: we are doing what we have to do, we know where we are going – something like that).

    Merkel conceding (?) to Draghi is an infinitely more powerful reason for crazy sudden optimism like that.

  8. ignim Brites

    Against whom is the ECB’s “unlimited firepower” going to be directed? Dronenomics!

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