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German at European Central Bank at Odds With Country’s Policy Makers

Jack Ewing and Melissa Eddy|The New York Times
Tuesday, 28 Aug 2012 | 2:54 AM ET

A top German official at the European Central Bank on Monday defended the bank’s plans to intervene in bond markets to push down borrowing costs for businesses and encourage economic growth. The position puts him at odds with the president of Germany's central bank and highlights a growing split in the country’s policy-making elite.

John Thys | AFP | Getty Images

, a German who is a member of the European Central Bank’s (explain this) executive board, said during a speech in Hamburg that the European bank had to buy bonds because distortions in the market for government debt had interfered with monetary policy and prevented cuts in official interest rates from trickling down to companies that needed credit.

By framing the issue as a matter of business growth, rather than government bailouts, Mr. Asmussen seemed to be taking a stance that might appeal to German political opponents of market intervention by the European bank — to which Germany is the biggest financial contributor.

“The markets are pricing in a disintegration of the euro zone,” Mr. Asmussen said, according to a text of the speech, which was in German. “Such systemic doubt is dramatic — and for the European Central Bank, unacceptable.”

Mr. Asmussen’s remarks came a day after Jens Weidmann, president of the German central bank, the Bundesbank, fiercely criticized plans by the European Central Bank to intervene in bond markets.

The stark difference in views between the two officials is surprising because they have been seen as close allies. They both studied economics at the University of Bonn. Both were high-ranking officials in the German government — Mr. Asmussen as a top aide in the Finance Ministry and Mr. Weidmann as economics adviser to Chancellor Angela Merkel — before becoming central bankers.

In recent days, Ms. Merkel has moved carefully away from hard-liners who argue that troubled euro zone countries must largely solve their own problems. On Monday, a leader of her governing coalition repeated her warning to party members to stop speculating about Greece leaving the euro.

“I believe that at the end of the day, everyone has to ask themselves the basic question: Do we want a currency union and do we want to take all responsible steps possible to maintain this currency union?” said Michael Meister, one of the leaders of the conservative caucus in the German Parliament.

Ms. Merkel and Mr. Asmussen operate in different policy spheres. Mr. Asmussen is formally supposed to represent all of Europe and not just Germany. But their alignment on this issue provides a counterweight to the school of thought represented by Mr. Weidmann.



The European bank and its president, Mario Draghi, would be taking a huge risk if they embarked on a significant bond-buying program against unified opposition from top German leaders.

The crux of the debate in Germany and elsewhere in Europe is whether Spain, Italy and other countries in distress are to some extent victims of the financial markets and thus deserving of more outside help, or whether they are being justly punished by investors for poor economic performance and lax fiscal discipline.

According to the second argument, measures by the European bank to hold down their borrowing costs by buying their bonds would only encourage political leaders to procrastinate on measures to improve their competitiveness.

That was the argument voiced in an interview by the newsmagazine Der Spiegel with Mr. Weidmann, whose views are in tune with those of many German economists and citizens. “The financial largess of the central bank will awaken lasting covetousness and lead to a socialization of risks,” he said in the interview, which was published on Sunday.

But on Monday, Mr. Asmussen sided with those who argue that one reason investors have driven up borrowing costs for Spain and Italy is that they have lost confidence in the common currency. “Only a currency whose existence is beyond doubt is a stable currency,” Mr. Asmussen said.

Ms. Merkel has not publicly taken a clear position on bond buying, and she generally avoids giving advice to central bankers. But Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, argued that Mr. Weidmann’s hard line served her purposes, ensuring that any central bank bond buying would come with many strings attached.

“Ms. Merkel is willing to back Mr. Draghi because she has been more or less reassured by the heavily conditional nature of his bond-buying plan,” Mr. Spiro wrote in an e-mail.



Mr. Asmussen did little in his speech to clear up intense speculation about what strategy the European Central Bank would use to control bond markets. He repeated statements by Mr. Draghi that the bank would operate in conjunction with the European rescue fund and focus on buying only shorter-term debt.

If the central bank buys only bonds that mature in two years or so, countries would still have a strong incentive to make changes. That is because they would have only a short time before they needed to face investors again to sell new debt.

Mr. Asmussen warned that the crisis was driving the Europe nations further apart, reviving national stereotypes. “I am continually astonished how casually people speak about other residents of the common European house,” he said.

Financial markets within Europe are also fragmenting, he said. Banks are doing less business across borders, reversing years of progress toward creating a single market. Mr. Asmussen called for faster progress toward creating a common bank regulator and a European deposit insurance program to prevent bank runs.

To that end, the German and French finance ministers announced on Monday the creation of a study group to draw up joint proposals on issues including fiscal and banking unions.

“We will start in the next days and weeks a working group between our ministries to prepare forthcoming decisions in bilateral cooperation,” Wolfgang Schäuble, the German finance minister, said after meeting his French counterpart, Pierre Moscovici, Reuters reported.

The announcement came after Ms. Merkel and the French president, François Hollande, met in Berlin on Thursday.

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