Greeted with initial fanfare by investors and economic officials, the unlimited bond-buying plan that the European Central Bank president, Mario Draghi, announced Thursday ran into immediate political problems in the crucial countries of Germany, Spain and Italy.
In Germany, despite Chancellor Angela Merkel’s support for Mr. Draghi and the independence of the Central Bank, political and news media reaction was scathing, with accusations that the bank, in seeking to stabilize the euro currency union, was subverting its mandate to fight inflation and forcing debt upon euro zone members.
“A Black Day for the Euro,” “Over the Red Line” and “Pandora’s Box Opened Forever” were some of the German headlines, with the normally sympathetic Süddeutsche Zeitung headlining an editorial: “The E.C.B. Rewards Mismanagement.” Even the German Bundesbank, officially part of the European Central Bank, put out a statement commenting acidly that the plan was “financing governments by printing bank notes.”
At the same time, the two intended beneficiaries of the Draghi plan — Spain and Italy — expressed reluctance to ask the bank for help, even if both might eventually have little choice but to seek aid. The governments in Madrid and Rome apparently fear the political impact at home of bowing to whatever demands for harsh economic policy changes might come with the aid.
“Those who did everything to have the E.C.B. help now say they don’t want it,” Ferruccio de Bortoli, editor in chief of the newspaper Corriere della Sera, said in a Twitter message. “Speculation will play on this contradiction.”
The markets reacted to the announcement with euphoria. On Friday, the German DAX stock market index climbed to over 7,200 points, its highest level in 2012. Yields on Spanish and Italian sovereign bonds dropped, as well.
But the criticism of the ECB's course continued in Germany. Bundesbank President Weidmann reiterated his opposition to the move, saying it was too close to "state financing via the money presses." Alexander Dobrindt, general secretary of Bavaria's conservative Christian Social Union, said that the ECB must be "a stability bank and not an inflation bank".
The center-left Süddeutsche Zeitung writes:
"Rescuing the euro at any price could be an economic disaster -- that is the red line that must not be crossed. The other limit is the law: In a community based on law, the ends can never justify the means. A euro community that is based on constantly breaching treaties is built on a shaky foundation."
"On Thursday, the ECB unfortunately crossed both red lines. It did so reluctantly and not irrevocably, and yet it did so with determination. The purchase of government bonds by the central bank means that the ECB will tolerate and even reward economic mismanagement. (…) The crisis countries are not out of the woods yet. And that means that if the ECB provides them with unlimited help, then it is financing unsound states. It can only do so by printing ever more money. Ultimately, there will be the threat of bubbles, crises and inflation. It will benefit speculators, and the vast majority of citizens will have to foot the bill."
The center-right Frankfurter Allgemeine Zeitung writes:
"Draghi has made it clear that, from now on, the ECB will only buy bonds when a crisis-hit country asks for help from the euro rescue fund or agrees to other conditions. But that promise isn't new. The would-be saviors of the euro have been insisting on structural reforms for years. The recipients of aid make promises but often do not keep them. But what will the ECB do if, say, Italy does not carry out the labor market reforms it has promised? Is it going to start selling Italian bonds? It can't if it takes its own argument seriously, that monetary policy in the euro zone no longer functions properly."
"The central bank is getting tangled up in its own arguments because it has allowed itself to become the prisoner of politics. Since it is willing to make up for the failures of European politicians, it can not quit the bond-purchasing program."
"The leaders of southern euro-zone countries should be happy: They can continue to borrow at low interest rates and do not need to worry about finding investors. But the northern leaders are satisfied, too, because they can hide behind the ECB and do not need to face uncomfortable questions in, say, the Bundestag (Germany's parliament) about all the additional risks that Germany is taking on. In the euro zone, there is no longer a distinction between monetary and fiscal policy."
The conservative Die Welt writes: "Every time the politicians shout 'fire,' the ECB puts it out. .. "With his reference to a possible breakup of the euro zone, Draghi tried to justify the fact that he is trampling all over the ECB's statutes. In doing so, he is doing the dirty work for governments, who can slow down the pace of reforms a bit now that they are being protected by the central bank. At the same time, the ECB will get clogged up with government bonds from the crisis countries."
"The dangers of this policy are enormous. At the moment, it's not inflation that is the big problem. Rather, it is the redistribution of wealth from the north to the south in a completely non-transparent way and without political legitimacy. (The money is flowing) from the savers to those who benefit from this irresponsible monetary policy. This is undemocratic and antisocial."
No One Happy Except Stock Market
There are some favorable comments in the Der Spiegel but many additional negative ones that I did not excerpt.
Curiously, no one seems happy with the deal but the central bankers who hatched the plan and the stock market.
Of course the stock market always easy money, until things blow sky high like the 2000 dotcom bubble and the 2005 housing bubble. Addendum:
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