--ECB castigates "absolutely misleading" reports on its bond buying plan
--ECB will act strictly within its mandate, spokesperson says
--Targeting government bond yields by ECB could be problematic, German
finance ministry says
--Decisions on sharing solvency risks should fall to governments, not ECB,
Bundesbank warns
--Government officials shouldn't speculate on ECB interventions, ECB says
The German government and the European Central Bank both hit back
Monday at a weekend report that the ECB was planning to cap the
borrowing costs of fiscally-strained countries with its unlimited
resources.
A report in German magazine Der Spiegel at the weekend had re-opened a
painful debate over how far the ECB--widely perceived as the only
institution capable of holding Europe's currency union together--can
go in its attempts to keep interest rates low in those countries that
have lost the markets' trust and are struggling with acute recessions.
The report had suggested that the ECB's governing council would
discuss a plan to cap the borrowing costs of struggling euro-zone
governments by buying unlimited amounts of their bonds to keep
interest rates at a reasonable level.
That would test the limits of a grand plan to support euro-zone debt
markets that was sketched out with deliberate vagueness by ECB
President Mario Draghi earlier this month. It would also appear to
cross a red line drawn by Germany's Constitutional Court stopping any
euro-zone attempts to stack up unlimited amounts of liabilities for
future generations of German taxpayers.
"It is absolutely misleading to report on decisions, which have not
yet been taken, and also on individual views, which have not yet been
discussed, by the ECB's Governing Council," an ECB spokesperson wrote
in an email sent to journalists. He stressed that the ECB "will act
strictly within its mandate" of fighting inflation.
Germany's finance ministry also warned that a target interest rate for
government bond yields by the ECB would be problematic, "abstractly
speaking".
The Spanish and Italian government bond markets had rallied earlier on
the Spiegel report, with two-year yields hitting their lowest point in
two weeks, as traders drew a mental dotted line from the report to
conciliatory comments last week by German Chancellor Angela Merkel.
Merkel had ECB President Mario Draghi's recent pronouncements as
"completely in line" with Germany's thinking.
However, the ECB spokesperson's statement made clear that even if an
individual member of its top management would like to cap yields to
ensure what the ECB calls the proper transmission of monetary policy,
any "plan" is, at most, embryonic and faces considerable opposition.
Germany's influential Bundesbank, which has long opposed government
bond purchases by the ECB, stepped up its rhetoric again in its
monthly report, released Monday.
"Decisions on whether to share solvency risks much more widely should
be taken by governments and parliaments' and not by the ECB, the
Bundesbank said. The bank "holds to its opinion that government bond
purchases by the Eurosystem in particular are to be seen critically
and are linked to considerable risks to stability," it said.
By referring to "solvency risks", the Bundesbank raised the
possibility that some euro-zone members might default on their debts
even as the ECB tries to build a firewall around those states.
A Bundesbank spokesman said Monday that the comments were part of its
monthly report and not a direct response to the article in Der
Spiegel.
But the Bundesbank's rigor is not necessarily shared by the other
German on the ECB's governing council, Joerg Asmussen. Asmussen
indicated his support for Draghi's plan in an interview with the
Frankfurter Rundschau newspaper, published Monday. However, he
repeated that the euro zone's own bail-out vehicles, rather than the
ECB, should take the lead in supporting countries' government bond
markets.
At the other end of the crisis' spectrum, Spain's finance minister
Luis de Guindos reaffirmed at the weekend his government would like to
see the ECB commit to massive, open-ended sovereign-debt purchases
before it relinquishes its budgetary sovereignty and asks for a
bail-out.
Mr. Draghi signaled earlier this month that the ECB would only
consider intervening if Spain asks the European Financial Stability
Facility, the euro-zone's temporary bailout fund, for aid and enrolls
in a formal program. The Spanish government has said it will decide
whether to make such a request after the ECB provides more details on
the type of support it would offer. This information could come after
the ECB governing council's policy meeting Sept. 6.
But on this point too, the ECB could only emphasise the distance
between its position and Spain's.
"As far as recent statements by government officials are concerned, it
is also wrong to speculate on the shape of future ECB interventions,"
the ECB spokesperson said. "Monetary policy is independent and
undertaken strictly within the ECB mandate."
Write to Tom Fairless and Todd Buell at tom.fairless@dowjones.com
(Jonathan House in Madrid contributed to this article.)
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(END) Dow Jones Newswires
August 20, 2012 07:25 ET (11:25 GMT)
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