Bloomberg News

Germany Won’t Block Bundesbank IMF Loans, Merkel Ally Says

December 13, 2011

(Updates with Bundesbank comment in seventh paragraph, Merkel in ninth. For more debt-crisis news, click on EXT4.)

Dec. 5 (Bloomberg) -- German Chancellor Angela Merkel’s government won’t stand in the way of Bundesbank help to fight the debt crisis by means of loans channeled through the International Monetary Fund, a senior Merkel ally said.

Germany is keen for the IMF to adopt a “decisive role” in combating the crisis alongside the European rescue fund, Michael Meister, the parliamentary finance spokesman for Merkel’s Christian Democratic Union, said today in a telephone interview.

“If the IMF says it needs more money, then it’s up to the Bundesbank to decide this in Germany’s case,” he said. “It’s not for lawmakers nor Frau Merkel’s government to decide or to interfere.” Lawmakers “would have a problem if political pressure was openly brought to bear on the bank, not with its decision.”

Merkel and French President Nicolas Sarkozy agreed at a meeting in Paris today to press fellow leaders at a Dec. 8-9 European Union summit to lock in tighter economic cooperation as a first step to snuff out the crisis now in its third year.

Euro-area finance ministers gave the go-ahead last week for work on a proposal to recycle central bank loans through the IMF that may deliver as much as 200 billion euros ($269 billion) to fight the crisis, two people familiar with the negotiations said.

‘Bigger Role’

“We’d be really pleased to have the IMF take on a bigger role,” Meister said. “We as Germans have always sought a decisive role for the IMF in fighting this crisis.”

The Bundesbank may be prepared to make loans to the IMF to combat the crisis, the Die Welt newspaper reported today, citing a November letter from the central bank’s president, Jens Weidmann, to German Deputy Finance Minister Joerg Asmussen. Article 123 of European rules regulating the single currency bans central banks from directly funneling cash to states to plug deficits, Die Welt said.

A spokeswoman for the Bundesbank declined to comment on the Die Welt report or on Meister’s opinion.

The need for a fresh anti-crisis measures became apparent as the effort to boost the 440 billion-euro European Financial Stability Facility to 1 trillion euros fell short. Central bank loans may be linked to adoption of tougher budget policing and tighter economic ties as espoused by Merkel and Sarkozy.

‘Sensible Combination’

“I believe that with the EFSF we have quite enough -- maybe not as much money as some want, but we do have 250 billion euros there, we have a lot more flexibility,” Merkel told reporters in Paris today. “This money should also be used in a sensible combination with the IMF, if it is needed. So we are not standing here without any solution.”

Merkel has been at the forefront of efforts to strive for “fiscal union” through European treaty changes to create automatic, court-enforced sanctions on euro members that breach limits of 3 percent of gross domestic product on deficits and 60 percent of GDP on debt.

The chancellor also led the charge for private bondholders to automatically share in any losses under the permanent rescue fund from 2013, the European Stability Mechanism. While talks are ongoing about possible changes to the ESM, there are “very good reasons” for including clauses that force the private sector to share in any losses, Merkel said Dec. 2

Meister stepped up German resistance to watering down the private-sector involvement, saying there is an “urgent need” to move to a compulsory role from voluntary involvement as with Greece.

“We need to give markets very clear information on pricing in risks when buying new euro region sovereign bonds,” Meister said. “That’s where collective action clauses come in and with them clear procedure for investors in case a sovereign state should face insolvency. This should not be changed, that is our position.”

--With assistance from James G. Neuger in Brussels. Editors: Alan Crawford, Andrew Atkinson

To contact the reporter on this story: Brian Parkin in Berlin at bparkin@bloomberg.net.

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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