The European Central Bank is working out plans to launch a new and more transparent scheme for purchasing sovereign debt that will be tied to intervention by the European rescue funds and political action. But Germany's Bundesbank on Monday (20 August) stepped up its resistance to the idea.
In response to a renewed intensification of the debt crisis with Spain and Italy now at its centre, ECB President Mario Draghi said on 2 August the ECB may buy more government bonds, but only once countries had turned first to the region's rescue funds for help and agreed to strict conditions.
Details of the plan are still missing and in the meantime speculation of the shape of the new programme is making the rounds in the media.
Over the weekend, German magazine Der Spiegel reported that the ECB is considering setting interest rate thresholds for any purchases of struggling eurozone country's bonds so that it would buy such bonds if their interest rates exceeded a certain premium over German bonds.
The ECB responded by seeking to quash speculation, saying decisions had not yet been taken and that it was misleading to report otherwise.
"It is absolutely misleading to report on decisions, which have not yet been taken and also on individual views, which have not yet been discussed by the ECB's Governing Council, which will act strictly within its mandate," an ECB spokesman said.
"As far as recent statements by government officials are concerned, it is also wrong to speculate on the shape of future ECB interventions. Monetary policy is independent and undertaken strictly within the ECB mandate," he added in a statement to journalists.
Policymakers are posturing over the programme ahead of a crunch ECB meeting on 6 September at which markets will be looking for the central bank to spell out more details of the plan.
However, one central bank source said there is still disagreement within the ECB over the terms of the scheme.
Last week, German Chancellor Merkel offered a robust defence of Draghi, after he triggered a stormy debate in Germany by promising to do "whatever it takes to preserve the euro" and signalling his readiness to resume ECB bond purchases.
The ECB has barely used its existing bond-buy plan this year and has bought no bonds for 23 weeks despite an intensification of the eurozone debt crisis.
Spanish Economy Minister Luis de Guindos said in comments published on Saturday that the ECB must take forceful and unlimited steps to buy sovereign debt to help Spain reduce its funding costs and eliminate doubts over the eurozone's future.
But other European countries will want to ensure Spain does not start to soft-pedal its reforms – as Italy did last year when the ECB began buying its bonds – and signs the eurozone crisis is affecting the bloc's core will stiffen their resolve.
On Monday, Germany's Bundesbank showed no signs of lowering its resistance to bond purchases, even after Merkel voiced support for the ECB's crisis-fighting strategy.
The powerful Bundesbank objects to Draghi's plan to resume buying bonds on the grounds that this amounts to monetary financing of governments, contravening European law.
"The Bundesbank remains critical of the purchase of euro system sovereign bonds, which comes with considerable risks for stability," the Bundesbank said in the introduction of its monthly report, reflecting the views of its leadership.
"Decisions about a possible broader mutualisation of solvency risks should be … with the governments and parliaments, and should not occur via central bank balances."
The European Central Bank said on 2 August that it was prepared to buy Italian and Spanish bonds on the open market but only after these countries had made a formal request to activate the region's bailout funds and accepted painful reforms to restore their public finances.
The bank has already spent €210 billion buying bonds under its now dormant Securities Markets Programme (SMP) since May 2010, with limited impact, but ECB President Mario Draghi said the new effort would be different in scope and conditionality.
The German government has resisted calls from Italy and struggling countries to introduce common eurozone bonds or take other action to help alleviate the bloc's sovereign debt crisis, saying it would remove pressure to enact painful reforms.
- 6 Sept.: ECB meeting expected to spell out more details of the plan.
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