'Violation of Treaties': Berlin Wary of ECB Plan to Help Southern Europe
The European Central Bank would like to encourage banks in Southern Europe to issue more loans. But Berlin is concerned that a planned move to trigger such lending could violate EU treaties. German Finance Minister Wolfgang Schäuble has hit the brakes.
German Finance Minister Wolfgang Schäuble and European Central Bank head Mario Draghi have never seemed particularly eager to avoid conflict with one another. Just in January, the two got into a mini war-of-words over the need to bail out Cyprus, with Schäuble openly questioning whether the country was systemically relevant.
The motivation for considering such a move is clear. The ECB is eager to stimulate bank lending, particularly in Southern European countries where the debt crisis has made banks wary of issuing loans. But Schäuble is concerned that an ECB program of buying asset-backed securities could amount to the bank taking over some 70 billion in debt owed by Italy to private creditors.
Schäuble was backed on Monday by Hans Michelbach, the top conservative in the Finance Committee in parliament. "After the extremely questionable ECB purchase of sovereign bonds, this would be a clear violation of European treaties," Michelbach said, according to German news agency DPA. There are, he said, apparently some people in the ECB leadership "who consider the ECB to be the Bad Bank of Southern Europe."
Banking Union Challenges
Over the weekend, Draghi indicated that the plan is still under consideration. At a G-7 meeting near London on Sunday, Draghi said: "We looked at a variety of things, one of which was this ABS. We're still looking at that, it's one of many options. We don't have a position, certainly, on that."
Asset-backed securities got a bad name in the financial crisis and US housing crash in 2008. They were a key element in the housing bubble and served as a tool to bundle sub-prime mortgages -- investments which ultimately proved toxic for the banks that bought large quantities of them. They also, however, can be an important tool in freeing up capital to allow banks to lend more.
Germany has long been pursuing a "banking union" as a way to prevent a repeat of the euro crisis in the future. Euro-zone leaders would like a separate bank bailout fund, the ability to wind down banks that run into significant difficulties and clear rules regarding when and if taxpayers must be responsible for a bailout.
"The EU does not have coercive means to enforce decisions," Schäuble writes. "What it has are responsibilities and powers defined by its treaties. To take them lightly, as is sometimes suggested, is to tamper with the rule of law."
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