Bloomberg News

Merkel Allies Harden Opposition to Granting Bank License to ESM

July 31, 2012

Merkel Allies Harden Opposition to Granting Bank License to ESM

German Chancellor Angela Merkel and German Finance Minister Wolfgang Schaeuble during a session of the Bundestag, the lower house of parliament in Berlin. Photographer: Johannes Eisele/AFP/Getty Images

Chancellor Angela Merkel’s coalition rejected granting the permanent euro rescue fund access to European Central Bank liquidity via a banking license, as the Finance Ministry said it saw no need for any such move.

The rules of the European Stability Mechanism don’t foresee a license to allow refinancing at the ECB, the Berlin-based ministry said today in an e-mailed response to questions. The ministry isn’t holding talks on the topic and neither are secret meetings taking place on such proposals, it said.

France and Italy are building support for a previously floated plan to allow the permanent backstop to wield unlimited firepower courtesy of the ECB, Germany’s Sueddeutsche Zeitung newspaper reported today, citing a European Union official it didn’t name. Leading ECB governing council members are among those who now back the idea, the newspaper said.

Lawmakers from all three parties in Merkel’s coalition immediately repudiated the suggestion. It is a “dangerous attempt” to bypass the ban on the central bank financing states directly, said Hans Michelbach of the Bavarian Christian Social Union. The Free Democratic Party’s Rainer Bruederle told Die Welt newspaper such a mechanism is a “wealth-destroying weapon,” while Norbert Barthle of Merkel’s Christian Democratic Union said it won’t happen.

“Those who try to circumvent their own rules through the back door lose their legitimacy in the eyes of the public,” Michelbach said in an e-mailed statement. “Financing debt by means of the printing press leads to growing inflation dangers.”

Draghi’s Pledge

Almost three years into Europe’s financial crisis, leaders are still struggling to hit upon a solution. Spanish and Italian borrowing costs retreated from euro-era records last week as ECB President Mario Draghi said he will do everything that is needed to safeguard the euro area.

Euro-zone members can’t afford take their eyes off the ball for a minute even if there has been a “gradual clearing of the outlook” for the common currency, Italian Prime Minister Mario Monti told reporters in Paris today after a working lunch with French President Francois Hollande.

“Madrid, Rome and Paris shouldn’t overplay their hand,” Die Welt cited Bruederle, parliamentary floor leader of Merkel’s junior coalition partner, as saying. “The burdens that can be placed on contributors from the north aren’t limitless.”

A banking license for the ESM would pile up budgetary risks and set incentives to simply continue policies of endless debt accumulation, said Michelbach. The ECB’s purchase of Italian bonds in the secondary market curtailed the government’s resolve to change economic policy, and a renewed round of bond buying would harden Italy’s refusal to carry out reforms, he said.

“It’s clear that the ESM shouldn’t become the ECB’s bad bank,” Barthle, parliamentary budget spokesman for Merkel’s party, told Tagesspiegel newspaper in an interview. It makes “no sense to speculate daily about ideas to solve the euro crisis,” he said. “We need calm and discretion.”

To contact the reporter on this story: Rainer Buergin in Berlin at

To contact the editor responsible for this story: Rainer Buergin at

We Almost Lost the Nasdaq

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

blog comments powered by Disqus