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ECB Rescue Plan Still Short on Details

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European Central Bank (ECB) President Mario Draghi is set to unveil his bond purchase plan on Thursday, and canceled a planned appearance at the Jackson Hole symposium to flesh out the details. However, it is likely that even when he reveals more of the actions he has in mind, the picture will continue to be fuzzy around the edges—continuing German opposition to the plan, along with a pending decision by the German Constitutional Court that is not due till later in the month, mean that he may try to reserve flexibility by not nailing down every detail.

Bloomberg reported Monday that Draghi may even be looking for a bit of disappointment on the part of markets when he makes his plan public, in the hope that rising interest rates will drive Spain and Italy closer to accepting the conditions that will almost certainly be attached to any new bond-buying program.

Both countries have resisted formally applying for aid from Europe’s bailout fund, which they see as accepting help with too many strings attached, but one part of German opposition is focused on not having enough conditions attached to any such program. If Italy and Spain are unwilling to turn over more financial autonomy to bailout authorities, stiff opposition to any additional assistance is likely to continue. Bundesbank President Jens Weidmann has already threatened to quit over the issue, to which he is firmly opposed.

Some of the options central bank officials have said are being considered are purchases not just confined to government bonds but across a range of asset classes; targets on spreads over German Bunds; and caps on sovereign bond yields.

Finance Minister Wolfgang Schaeuble of Germany repeated his warning to markets not to place too much faith in any such plan, because Germany would not agree to anything that falls outside what it says is the ECB’s mandate and will not accept ECB financing of government budgets.

“We have to be very careful that we don’t raise false expectations,” he was quoted saying. “It has to remain very clear, state debt can’t be financed through monetary policy. Therefore we can’t have a decision—we would think it very wrong—that’s not covered by the ECB mandate.”


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