Bloomberg News

Merkel’s Coalition Members Signal Acceptance of ECB Bond-Buying

August 03, 2012

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.

With Merkel on vacation for another week and parliament in summer recess, there was no official government reaction to Draghi’s announcement yesterday of a blueprint to ease bond markets and lower borrowing costs for Italy and Spain in return for strict conditions. In her last statement on the crisis, on July 29, Merkel echoed Draghi’s language, saying that she will do everything to protect the euro.

Economy Minister Philipp Roesler, whose Free Democratic Party is Merkel’s junior coalition partner and has been skeptical of bailouts, said the ECB should “focus on its core mandate” of safeguarding monetary stability, according to an interview in the Passauer Neue Presse newspaper.

ECB Independence

Even so, in a separate interview with German broadcaster N- TV, Roesler said bond purchases are “within the independence, the possibilities of the central bank,” according to an e- mailed transcript. “One always has to be careful to keep the right balance” to avoid accelerating inflation, he said.

Alexander Dobrindt, general secretary of the third coalition party, Bavaria’s Christian Social Union, called for a reform of ECB voting rules to give Germany a veto right in the Governing Council, according to an interview in today’s Tagesspiegel newspaper.

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?”

While Europe’s governments have spent too much and economic reform measures as well as spending cuts have to be implemented, more has to be done to solve the current crisis and the ECB will now provide that short-term aid, Brok said.

“We’re at an epochal turning point,” Brok said. “We’ve had 60 years of peace, freedom and welfare and now comes an attack that could destroy this concept, which we have to deflect.”

To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net

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


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