By JACK EWING
FRANKFURT — The president of Germany’s
powerful central bank reiterated his opposition to massive bond
purchases Friday, potentially undercutting expectations that the European Central Bank is preparing to intervene more forcefully in financial markets.
“I don’t believe that the euro
would be stabilized over the long term by ignoring constitutions and
treaties,” Jens Weidmann, president of the Bundesbank, said in an
interview. “The central bank is forbidden from redistributing debt
obligations in massive amounts among the euro-zone countries.”
Mr. Weidmann spoke a day after Mario Draghi, the president of the
E.C.B., made comments that were widely interpreted as opening the door
at least a crack to a European version of quantitative easing — massive purchases of government bonds to stimulate bank lending and growth.
In a speech to European Parliament members on Thursday, Mr. Draghi
called for a “new fiscal compact” among euro nations, and suggested that
if one materialized the E.C.B. might be willing to take additional
steps.
Mr. Weidmann declined Friday to comment directly on Mr. Draghi’s
remarks. But he said he does not believe his opinions are far apart from
those of the E.C.B. president. If so, that raises the question of
whether Mr. Draghi in fact meant to signal bolder intervention in
financial markets. In any case, Mr. Draghi would certainly think hard
before effectively printing money without support from Europe’s largest
economy.
“Financing nations by printing money is absolutely incompatible with a
monetary policy that guarantees price stability,” Mr. Weidmann said. By
law, the European Central Bank is supposed to make price stability its
overriding priority.
Mr. Weidmann has only one vote on the E.C.B.’s 23-member governing
council, but its members are extremely conscious of the need to maintain
the consent and trust of euro-area citizens. Mr. Weidmann’s views are
widely shared in Germany, including by Chancellor Angela Merkel. Mr.
Weidmann, 43, served as her economic advisor before becoming Bundesbank
president in May.
On Friday, Mrs. Merkel reiterated her support for stronger fiscal
cooperation across the euro zone, in line with the measures Mr. Draghi
and Mr. Weidmann have called for. Speaking to the German parliament, she
called for a “union of stability” able to enforce controls on
individual European economies.
“Where we today have agreements, we need in the future to have legally
binding regulations,” she said. European leaders are scheduled to meet
next Friday, though it is unclear whether they will be able to reach
agreement on tighter rules.
In his comments Thursday, Mr. Draghi never explicitly promised to widen
the E.C.B.’s intervention in bond markets, and he may have had other
measures in mind. The E.C.B. has other tools at its disposal that would
not meet opposition from the Bundesbank. For example, when the E.C.B.
meets next Thursday, it is expected to broaden its support to euro-area
banks by offering them unlimited, low-interest loans for as long as
three years.
So far the maximum lending period has been 13 months. Longer loans would
help banks that have had trouble raising funds on the open market by
issuing their own bonds. That is a typical way that banks raise money to
lend on to customers, but bond issuance has plummeted because investors
have become uneasy about the health of euro-area institutions.
Two or three-year E.C.B. loans would also help banks that have
longer-term obligations that must be continually refinanced.
The E.C.B. demands collateral in return for the loans, but accepts
securities that have lost value on the open market, including bonds from
Greece. Defenders of the bank argue that its liberal collateral policy
already amounts to a form of quantitative easing, because it allows
institutions to convert devalued paper into cash that can be lent to
customers.
As he has before, Mr. Weidmann said that the solution to the crisis lies
with governments, who must win back the trust of bond investors by
addressing the shortcomings in the design of the euro zone. Countries
must be willing to cede some control over their spending policy, he
said, for example by agreeing to automatic tax increases if their budget
deficits rise above limits agreed to by treaty.
If political leaders announce a credible plan this coming week, he said, “calm could quickly return to markets.”
Nicholas Kulish contributed reporting from Berlin
