Draghi Pushes Germany on ECB

Argues for broader role in crisis fight without need for political union

ECB headquarters in Frankfurt. (Photo: AP) ECB headquarters in Frankfurt. (Photo: AP)

Mario Draghi, head of the European Central Bank (ECB), is challenging Germany’s opposition to the ECB’s intervention in the European financial crisis by going beyond what Bundesbank President Jens Weidmann says is the ECB’s sole mission: fighting inflation. Draghi wants to buy bonds, and he doesn’t want to wait—and says it’s not necessary—to wait for closer political unity among European nations to do so.

Bloomberg reported Thursday that Draghi took to the press with his argument, saying in the German weekly Die Zeit that the euro can be shored up without eurozone nations having to surrender political autonomy to an overriding European political system—something that Germany has spoken against.

Weidmann has been outspoken in his criticism of Draghi’s proposal that the ECB buy the bonds of troubled Spain and Italy to help drive down borrowing costs for the two countries. Last week in the magazine Der Spiegel Weidmann said bond buying was “addictive like a drug” and that the “touchy” notion of bond buying, with its purpose of holding down interest rates, gave him “stomach pains.”

But Draghi, who proposed the idea on July 26, is determined. He canceled planned attendance at the annual Jackson Hole economic symposium in the U.S. this week just two days after Weidmann’s public dismissal of the plan and wrote in the report, “A new architecture for the euro area is desirable to create sustained prosperity for all euro area countries, and especially for Germany. Yet this new architecture does not require a political union first. Economic integration and political integration can develop in parallel.”

Draghi is laying the groundwork for a continued challenge on the issue in advance of a planned Sept. 6 discussion by the ECB of interventions in the bond market on behalf of Spain and Italy and a decision scheduled for Sept. 12 by the German supreme court on whether the planned eurozone rescue fund is constitutional.

“Draghi is desperate to ease policy further and buy bonds,” according to Kit Juckes, London-based head of foreign-exchange research at Societe Generale. Juckes said in a client note that Draghi “would like to convince the Bundesbank of the need to do so, and we will find out what is going to happen next week.”

Draghi, who challenged Weidmann publicly on Aug. 2 by saying that the head of the Bundesbank was alone in having “reservations” about the plan, also wrote in his op-ed, “Those who want to go back to the past misunderstand the significance of the euro. Those who claim only a full federation can be sustainable set the bar too high.”

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