Investors risk being disappointed as they hope for the European Central Bank to this week unveil emergency measures to tackle the eurozone debt crisis, the German finance minister warned.
Wolfgang Schaeuble sounded a note of caution ahead of Thursday, when markets expect ECB president Mario Draghi to announce a massive bond-buying programme to shore up struggling nations.
“We have to be very careful that we don’t raise false expectations,” he said. “It has to remain very clear, state debt can’t be financed through monetary policy. Therefore we can’t have a decision — we would think it very wrong — that’s not covered by the ECB mandate.”
His words reinforce German opposition to the ECB financing states, and suggest that investors may be expecting too much from eurozone central bankers.
Many are betting that the ECB governing council’s monthly policy meeting on Thursday will see the bank announce it will buy up the debt of Spain and Italy to bring down their borrowing costs.
Andalusia yesterday became the fourth Spanish region to say it will seek help from the central government, requesting €1bn (£630m) to provide “liquidity” as it waits for a €18bn regional rescue fund to be set up. The regions’ struggles put more pressure on Madrid’s position.
Spain’s finance minister predicted that central bankers will act. “I think the ECB knows perfectly well what the problem is with the euro and that it will act in consequence,” Luis de Guindos said. Spain’s “number one” priority is to reduce its deficit from last year’s 8.9pc of GDP to the target 6.3pc this year, he added.
He spoke as data from the ECB yesterday showed that the bank has not bought sovereign bonds for 25 weeks in a row.
However Jens Weidmann, a member of the ECB council and the head of Germany’s Bundesbank, is opposed to massive bond purchases and reportedly considered resigning over the issue. He has argued that it verges on the outright financing of governments, which the bank’s statues make taboo.
Any programme announced is expected to require a country which wants the ECB to buy its bonds to seek help from the eurozone’s rescue funds first, to which conditions would be attached.
But while Mariano Rajoy, the Spanish prime minister, has said Spain will consider seeking additional aid on top of its €100bn bail-out for its banks, he said he did not see the need for any more fiscal conditions.
Kathleen Brooks, research director at Forex.com, said this “flies in the face of the ECB’s argument - that it won’t buy the bonds of eurozone member states unless the International Monetary Fund is involved in setting conditions in return for financial aid.”
The disagreement could mean that even if the ECB announces a new bond-buying effort, Spain and Italy’s refusal to accept more austerity could render if useless. “The market is expecting a lot from the ECB,” said Gustavo Reis, a Bank of America Merrill Lynch economist. “The likely market disappointment should intensify the pressure on Spain.”
The Telegraph
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