German economy minister supports Weidmann in bond buy opposition

BERLIN Sun Sep 2, 2012 6:03pm EDT

German Economy Minister Philipp Roesler pauses during a Reuters television interview in Berlin August 15, 2012. REUTERS/Tobias Schwarz

German Economy Minister Philipp Roesler pauses during a Reuters television interview in Berlin August 15, 2012.

Credit: Reuters/Tobias Schwarz

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BERLIN (Reuters) - Germany's economy minister threw his weight behind Bundesbank chief Jens Weidmann's opposition to the European Central Bank's plans to buy debt of euro zone countries with high borrowing costs, saying that they could not replace economic reforms.

Philipp Roesler was quoted in a newspaper to be published on Monday that Weidmann, who has made no secret of his displeasure with the strategy to lower Italian and Spanish borrowing costs by buying bonds, was right to make his opposition heard.

"Bond purchases cannot remain a permanent solution as they drive the danger of inflation," Roesler was quoted in a pre-publication release of Monday's Rheinische Post newspaper.

"ECB President Mario Draghi has pointed out himself that only structural reforms in individual countries can secure the competitiveness and stability of our currency, not bond purchases. That must be the course."

On Friday, Weidmann was reported to have threatened to quit several times in recent weeks over his frustration with the ECB plan but to have been dissuaded by the German government.

Draghi is due to announce details of the plan on September 6.

The Draghi plan involves any country wanting the ECB to buy its bonds to seek help from the euro zone rescue funds first -- to which conditions would be attached.

It is aimed at buying the euro zone governments time to negotiate legal and political hurdles to a longer-term response to the euro zone crisis.

In an interview with German weekly Der Spiegel last week, Weidmann said the buying program verged on the ECB taboo of outright financing of governments.

"It is exactly right of the Bundesbank and of Jens Weidmann to keep pointing that out," Roesler said in the interview.

Other ECB policymakers, such as Germany's board member Joerg Asmussen have sought to assuage Weidmann's concerns, saying the new program would ensure that countries whose bonds the ECB buys do not soft-pedal reforms.

In a minority in the ECB, Weidmann cannot stop Draghi's plan and the Italian has managed to isolate him to some degree by winning Merkel's tacit support for his scheme. But Weidmann could still undermine its impact.

A German government spokesman said on Friday after the report that Weidmann had threatened to quit and that German Chancellor Angela Merkel supported Weidmann as the country's top central banker and "that he should have as much influence as possible in the ECB."

Weidmann declined comment on the report on Friday.

(Reporting by Annika Breidthardt)

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Comments (1)
dareconomics wrote:
Philipp Roesler is the head of the Free Democratic Party, vice chancellor and economics minister in the German government. He supports the Bundesbank in its opposition to the ECB bond buying plan. He said,

Bond purchases cannot remain a permanent solution as they drive the danger of inflation.

From their lessons in school, Germans know that bond buying by the Reichsbank in the 1920′s led to hyperinflation and Hitler’s rise to power. These facts are ingrained in them just like Americans are taught that taxation without representation led to the Revolutionary War.

The Bundesbank was the guardian of the German Mark from the end of World War II to the adoption of the euro, and German citizens hold this institution in very high regard. By openly supporting Jan Weidmann, Roesler is playing to this sentiment. He is also setting himself up to take a crack at leading the German government if the ECB’s actions hurt the German voter.

Sep 04, 2012 12:14pm EDT  --  Report as abuse
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