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A German media campaign highlighting the alleged dangers of the European Central Bank’s planned government bond-buying programme escalated on Monday, with a leading tabloid newspaper telling readers the euro could be “dramatically devalued” if the plan goes ahead.
The salvo by Bild comes as Mario Draghi, ECB president, faces growing criticism of the proposals ahead of the bank’s crucial board meeting on Thursday, where it is expected to approve quantitative easing. Expectations were reinforced on Monday when French President François Hollande said the ECB will “take the decision to buy sovereign debt, which will add significant liquidity to the European economy”.
While Mr Draghi says QE is needed to stave off the threat of deflation in the eurozone, the German government led by Angela Merkel, the chancellor, believes the programme will not work and could burden taxpayers in Germany and elsewhere with heavy potential losses. The government’s views are widely shared by a sceptical German public.
Mr Draghi has responded to the criticism with a charm offensive, giving rare interviews to two top German newspapers and preparing to dilute his programme.
The ECB is expected to take account of German concerns about shouldering other countries’ potential losses and announce that ultimate responsibility for bond-buying will be divided among the 19 eurozone national central banks. However, his moves have done little to silence his German critics.
Hans-Werner Sinn, head of the Ifo economic institute and one of Mr Draghi’s toughest opponents, took to the airwaves on Monday to say that the proposed burden-sharing would not spare German taxpayers from bailing out weaker eurozone states.
Central banks in, for example, Greece, Ireland and Cyprus, had already given out loans far above “normal limits” and so were already borrowing from the ECB system, he said, adding that a new programme could increase this collective burden: “The result is that we are liable because, on balance, we give them loans via the ECB system by buying government securities. And if [the central banks] themselves are broke, they can no longer pay the loans.”
Nor could the troubled government of a bankrupt central bank come to the rescue: “If the state itself is broke, it cannot stand in for the national central bank anyway,” Mr Sinn said.
Bild said many were worried a weaker euro would reduce the pressure for reform in “crisis-hit countries such as Spain, Greece, Italy or France”. The paper quoted Anton Börner, president of BGA, an exporters’ association, as saying: “The so-called warm-water countries must finally clean themselves up properly. But they will never do this with a low euro. They only understand the tough language of the capital markets.”
Frankfurter Allgemeine, the quality broadsheet newspaper, also expressed doubts about whether QE would be effective. Under the headline, “No, Dr Draghi,” Gerald Braunberger, a leading columnist, said QE would not work, adding: “New American studies show that the positive effects of buying government bonds are very probably exaggerated.”
He also quoted Sabine Lautenschläger, the German ECB executive board member, who has said QE should a be “a last resort of monetary policy”.
Ms Merkel on Monday played down the significance for the eurozone of the coming ECB decision on QE and of Sunday’s Greek elections.
Even though the chancellor has often said that the euro crisis is not over, she said: “I would not talk about a decisive week for the euro.”
There was a crumb of comfort for the ECB in Handelsblatt, Germany’s leading business newspaper, which was one of two papers — along with the liberal Die Zeit — to secure a Draghi interview.
Bert Rürup, head of the Handelsblatt Research Institute, warned against German “monetary policy chauvinism” at the ECB, arguing that the ECB must make policy for all eurozone members, not individual countries, and that the “ECB council is not a clearing house for national interests in proportion to the economic significance of individual states”.
However, Mr Rürup’s main point was not to endorse QE but to promote a drastic cut in the ECB council, which has 21 voting members, to weaken the link with the representation of individual countries.
