They are doing it on a grand scale and they are doing it in secret – or at least they were.
National central banks within the euro-zone have been gobbling up securities and pumping hundreds of billions of euros into markets in recent years in transactions that were separate from official European Central Bank channels.
But now that secret is out, thanks in large part to a recently published dissertation from a finance expert in Berlin, Daniel Hoffmann, who revealed details of the clandestine bond-buying.
The news has triggered suspicions that the European Central Bank has been tacitly approving the opaque financing measures. National central banks from the 19-nation euro zone are typically charged with carrying out decisions of the Frankfurt-based central bank, which dictates monetary policy for the entire currency bloc.
Details of Mr. Hoffman’s dissertation emerged over the past week, showing a drastic rise in securities transactions by national central banks, without public knowledge, since the onset of the European debt crisis.
The research shows that since 2006, the combined securities portfolios of Europe’s national banks jumped from €200 billion, or $220 billion, to about €575 billion by the end of 2014.
These purchases were carried out well before the ECB in January of this year agreed a massive bond-buying plan, which was launched in March. Since then, bond buying has been official policy: The ECB has directed national central banks to buy about €60 billion in assets per month until at least March 2017.
“The biggest problem is the lack of transparency. What triggered the euro crisis was that numbers were falsified and not properly reviewed.”
The Bank of France has been the most prolific purchaser, accounting for €170 billion, while Germany’s central bank, the Bundesbank, is at the other end of the spectrum. At the end of last year, the Bundesbank held only about €14 billion in securities.
Mr. Hoffmann refrained from accusing the ECB of secretly printing money. He said the ECB is aware of the securities transactions of national banks within the euro zone and considers these in its monetary policy.
“The biggest problem is the lack of transparency,” he told Handelsblatt in an interview. “What triggered the euro crisis was that numbers were falsified and not properly reviewed.”
The first step toward transparency, he added, would be publication of the Agreement on Net Financial Assets, or ANFA, between the ECB and national central banks. ANFA regulates securities transactions, but the contents of the agreement are kept secret from the public.
Mr. Hoffmann’s research has sparked intense internal discussions at the ECB in Frankfurt, according to information shared with Handelsblatt. Some central bankers wonder why there has been such a dearth of disclosure around the transactions.
German policymakers in particular have long been suspicious about the value of central banks buying up government bonds and other securities, with conservative lawmakers and economists fearing it amounts to financing government debt. Germany’s Bundesbank led resistance to the ECB’s bond-buying program launched this year.
Many German politicians are now demanding more transparency.
Conservative lawmaker Hans Michelbach called on ECB President Mario Draghi to provide “comprehensive information about the strange monetary proliferation of several national central banks.”
Ralph Brinkhaus, vice chairman of the conservatives’ parliamentary group, said: “To protect their reputations and guard against the threat of unauthorized government financing, the ECB and national central banks should have the highest possible degree of transparency.”
Last week, Mr. Draghi ruled out that the bond-buying carried out by national central banks constituted state financing. He said the banks weren’t purchasing bonds in the primary market, and that there was a sufficient gap in time between the issuance of the bonds and their purchase by the banks.
He added that the big discrepancies in the securities portfolios of the national central banks were explained by their different investment policies. But he conceded that it was sometimes difficult to understand why they make certain bond purchases.
Mr. Michelbach, by contrast, said he feared that some countries “are printing gray euros on a fairly large scale.”
Jan Mallien is Handelsblatt’s correspondent covering monetary policy for Handelsblatt in Frankfurt. Dietmar Neuerer covers politics for Handelsblatt in Berlin. To contact the authors: email@example.com and firstname.lastname@example.org