Banking Blues

Friendly Fire Over Eurobonds

Schäuble AP
Conflict of interest at the ECB is a no no, said Wolfgang Schäuble, minister for finance.
  • Why it matters

    Why it matters

    The European Central Bank wants to stimulate euro zone economies by buying asset-backed securities. But Germany’s finance minister is wary.

  • Facts

    Facts

    • The European Central Bank is to have dual responsibilities for banking supervision and monetary policy.
       
      ECB president Mr. Draghi hopes to stimulate the euro zone economy by buying asset-backed securities.
    • The euro reached a new two-year low against the dollar on Thursday, at $1.269.
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    Audio

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When Wolfgang Schäuble reached for the mike on Thursday, most of the assembled lawmakers expected a standard speech to parliament.

Instead, Germany’s finance minister unexpectedly criticized the dual role of the European Central Bank and one of its latest plans to stimulate Europe’s economy.

“I am not too happy about the debate started by the ECB on purchasing asset-backed securities,” he said.

Mr. Schäuble said he is concerned that the ECB is responsible for the supervision of the banks as well as for monetary policy.

“We entrusted the European Central Bank with this task because otherwise we would have had to establish a new European institution,” he said. “But it’s problematic that a single institution oversees both.” He called for strict division between monetary policy and bank supervision to avoid a conflict of interest.

The politicians, who have already passed laws to implement the banking union on a national level, applauded Mr. Schäuble’s comments.

Mr. Schäuble’s critique is notable partly because he has repeatedly called for a revival of the European asset-backed security (ABS) market. These complex financial instruments were partly responsible for the financial crisis as they didn’t only allow credit risks to be spread but also hidden, which discredited the papers. The European market for asset backed securities has practically been frozen ever since.

“I am not too happy about the debate started by the ECB on purchasing asset-backed securities.”

Wolfgang Schäuble, German Finance Minister

Secondly, the critique by Mr. Schäuble comes shortly before the bank’s council makes a critical decision next Thursday. According to financial circles, the ECB is expected to make an announcement about how much and which ABSs it will buy.

At the start of the month the ECB president, Mario Draghi, announced that the bank would start buying ABSs at the beginning of October. Mr. Draghi aims to boost lending in southern Europe.

But the biggest questions remain unanswered.

The ECB only wants to buy senior tranche securities which have the lowest risk. But the market volume for these instruments is too low for there to be a perceptible effect on the banks’ lending. So Mr. Draghi has called repeatedly for guarantees from countries so that he can also buy mezzanine securities which have a higher risk. But it is clear following Mr. Schäuble’s speech that the German government is unwilling to provide this guarantee.

It is unclear whether Mr. Draghi’s plan to give banks new room to maneuver by buying ABSs will work out or not.

There was further bad news for the ECB president on Thursday. Loans to companies and households fell last month by 1.5 percent. In Spain, for example, the credit volume has fallen by 40 percent since the start of the crisis.

Mr. Draghi does not appear to have given up hope, however. He recently told Verslo Zinios, a Lithuanian newspaper, that the ECB’s support will lead to a moderate improvement in Europe’s economic situation. It is unlikely that this is because of hopes relating to his ABS program, but rather a weak euro, which reached its lowest point in two years on Thursday, at $1.269.

 

Frank M. Drost is a correspondent for Handelsblatt in Berlin. Jens Münchrath covers finance and economics for the paper. Contact the authors: drost@handelsblatt.com, muenchrath@handelsblatt.com.

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