'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.
Construction site of the new headquarters of the European Central Bank in Frankfurt.

Construction site of the new headquarters of the European Central Bank in Frankfurt.


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.

Now, the two are at odds again. SPIEGEL has learned that Schäuble is deeply critical of an ECB idea to purchase asset-backed securities, fearing that the plan could be little more than "obscured state financing," a no-no for the ECB. Schäuble made his remarks at a breakfast of conservative lawmakers last Wednesday, according to sources present. Schäuble said that such a plan would violate European Union treaties.

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.

Schäuble, however, is not just concerned about the threat Draghi might pose to EU treaties. He also on Monday voiced his concern that efforts to push ahead a bloc-wide banking union could be in violation of EU rules. In a contribution for the Financial Times, Schäuble proposes a "two-step approach" that would leave bank bailouts in the hands of national authorities for now. The plan of having a super-national authority for the entire euro zone, he writes, require treaty changes before the have the necessary legal foundation.

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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