Europe's most powerful central bank kept up its opposition even after
Germany's political leaders voiced some support for ECB President Mario Draghi's
plan to resume buying bonds. "The Bundesbank remains critical of the purchase
of euro system sovereign bonds, which comes with considerable risks for
stability," the Bundesbank wrote in its monthly report. "Decisions about a
possible broader mutualisation of solvency risks should be... with the
governments and parliaments, and should not occur via central bank balances."Mr
Draghi indicated earlier this month the ECB could intervene in debt markets but
he held back from announcing concrete steps. The Bundesbank retains substantial
influence within Germany and across financial markets due to its inflation
fighting credentials, but it is unlikely it could scupper Draghi's plan, given
the German central bank is only one of 17 constituents at the ECB. This will
have the same effect like Eurobonds - No safe haven any more, borrowing costs
for Germany (and the UK) will rise and the costs for Italy and Spain will be
lower, as investors start already now buying their bonds.
Menwhile, an interview being published today with Asmussen from the
ECB...."Greek exit manageable but not preferable (reuters)"
1. He indicates support for Draghi's dual-path bond-buying program, in
contrast to the Bundesbank's Weidmann. (From Handelsblatt) He considers it
firmly within the ECB's mandate, as "only a currency whose existence is not in
doubt, is monetarily stable. "Precisely this doubt in the Euro's continuing
existence is what we want to remove from the market" ...The other German on the
ECB sides with Draghi.
2. On Greece. Staying in the Euro is his preference, but a Grexit would be
"manageable".
3. On the costs of a Grexit. "It would be associated with a loss of growth
and higher unemployment and it would be very expensive - in Greece, Europe as a
whole and even in Germany.". Handelsblatt adds: the ECB is worried about
the effects on other countries. One shouldn't act "as if one knows with
certainty what would happen the day after". That's relevant because
Asmussen, according to persistent German media reports, is the ECB board member
responsible for contingency planning for a Grexit - although it's something he
refuses to discuss with the media.
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Germany should restructure the debt it is owed by other countries for its own good, according to a member of the Bank of England's Monetary Policy Committee.
Adam Posen told the BBC that Germany or anyone looking after the country's interests would be "ill-advised" to supervise a eurozone break-up. He said:
It is in Germany's interest, its commercial interest and economic interest, not just its foreign policy idealistic interests, to really restructure the debt that other countries owe them.
It was German government decisions and German banks who lent the money to all these countries so they could buy German exports. [Germany has] been running a scheme and so just as everywhere around the world you want to restructure the debt, you can’t make it all on the borrower. [Lenders] have to take a hit [too].
[If the eurozone collapsed] Germany's currency would shoot through the roof, Germany's trade relations would be disrupted, and Germany's banks would then be on the bailout list instead of poor people and other countries, forever.
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