Saving the Euro
German President Questions Legality of ECB Bond Purchases
German President Christian Wulff blasted the European Central Bank's policy of buying up bonds from indebted euro-zone countries on Wednesday, saying it runs counter to European Union laws. His comments highlight just how controversial efforts at propping up the common currency have become.
German President Christian Wulff on Wednesday publicly questioned the legality of the European Central Bank's program of buying bonds of debt-ridden EU countries as a way of propping up their economies.
Speaking at a conference of economists in the Bavarian town of Lindau, Wulff said: "I regard the massive acquisition of the bonds of individual states via the European Central Bank as legally questionable."
He referred to an article in the EU's fundamental treaty which bars the ECB from buying bonds directly from governments. Because of the article, the ECB has been purchasing bonds on the secondary market. The ban, Wulff said, "only makes sense if those responsible don't circumvent it with comprehensive purchases on the secondary market."
Wulff holds a largely ceremonial post as president, but as a member of German Chancellor Angela Merkel's Christian Democratic Union (CDU) his comments show how controversial the issue of supporting the debt-ridden EU countries has become in Germany and in Merkel's own party. Wulff must also sign off on German legislation, including laws aimed at propping up the euro.
To date, the ECB has bought about €110 billion ($159 billion) in bonds from Greece, Ireland, Portugal, Spain and Italy. The bond-buying program began in May 2010, and it has been heavily criticized in Germany, above all by the German federal bank, or Bundesbank. The ECB recently started buying the bonds again after a 19-week pause. The move was opposed by two Germans on its Governing Council, Jens Weidmann and Jürgen Stark. Axel Weber, the former head of the Bundesbank, opposed the bond-buying program from its outset.
The Bundesbank again criticized the bond-buying program on Monday, saying that it curtailed incentives for "appropriate fiscal policy."
Kohl and Greenspan Weigh In
In his Wednesday speech, Wulff also indirectly positioned himself against proposals to introduce euro-bonds as a way of helping indebted countries borrow money on international financial markets. "Who would you personally take out a loan with?" he said. "Whose loan would you personally guarantee?" For one's own children this might work, but with other relatives it would be more difficult, he said.
Former German Chancellor Helmut Kohl, also of the Christian Democrats and an early supporter of the common currency, warned in an interview this week about the possibility of a breakup of the European Union. The EU must help its members, such as Greece, face their debt crises, he told the magazine Internationale Politik in Berlin. "We have no choice, if we do not want to let Europe break apart," he said.
Meanwhile, the German business daily Handelsblatt reported Wednesday that the former head of the US Federal Reserve, Alan Greenspan, expects an end to the European common currency. "The euro is collapsing," Greenspan was quoted as saying at a Washington, D.C. symposium. Such an event would cause grave problems for European banks, whose security is already partially "questionable," he said.