22 January 2015

Overstepping its mandate

As we noted in our recent QE briefing – the action by the ECB is likely to face legal challenges in Germany. Hans Michelback, the Chairman of the CDU/CSU Parliamentary Finance Committee, has already accused the ECB of breaking rules on state financing. He added that, “The decision is also an admission that the EBC’s policy of piling up opaque risks has had no practical impact on the real economy and has, therefore failed.”

Meanwhile, the CSU politician Peter Gauweiler today announced – even before ECB President Mario Draghi’s press conference –  that he is consulting with lawyers on  a case against the ECB’s QE programme. Gauweiler has launched legal action against the ECB before, challenging the legality of the ECB’s proposed OMT bond-buying programme at the German Constitutional Court.

Reform or bust

Speaking in Davos moments ahead of Draghi, German Chancellor Angela Merkel reiterated that the ECB is an independent organisation, and that Eurozone countries cannot afford to give up structural reforms.

The same message came loud and clear from leaders of German business.  Martin Wansleben, Head of the German Chambers of Commerce and Industry, (DIHK) said, “The ECB has become a prisoner of its own announcement. It’s now played its last trump card…The ECB must make it clear that its monetary policy supports the reform efforts of member states – but cannot replace them.”

Meanwhile, the President of Germany’s Insurance Association (GDV), Alexander Erdland, noted, “The move by the ECB is a disgrace.” Georg Fahrensohn, a CSU MP and President of the German Savings Banks Association (DSVG), said that the ECB “had shot its last bullet” – and that it had no choice but to “meet the expectations it had created in the market.”

Even Die Linke – who have traditionally been more open to the ECB taking a more activist role in the Eurozone – were clear in their condemnation. Their leader Sahra Wagenknecht called the QE programme, “a doping method for the financial markets.”

ECB “tearing Europe into ruin”

In an editorial named, “How the ECB destroys trust,” Holger Steltzner, The Economics editor of Frankfurter Allgemeine Zeitung, writes of the decision, “Europe’s most powerful institution buries the principles of the currency union.”

Die Welt’s Thomas Exner argues that QE “transgresses against everything that is holy to the Germans in terms of monetary policy..The ECB is blurring the lines of debt liability. Ultimately, no one should have any illusions, all euro states are from now in a liability union. It makes no difference that formally, the majority of the risks will be parked on the balance sheets of national central banks.”

Handelsblatt, Germany’s leading financial daily, runs a guest piece by economists Matthias Weik and Marc Friedrich, who say the ECB is “tearing Europe into ruin,” calling it “a bad day for many savers, and, above all, for democracy.”

Playing on German fears of a never-ending spiral of paying for others’ debts,  the front-page headline on the website of German tabloid Bild reads, “ECB takes billions of debt off ailing Eurostates – what happen to my money now?”It warns, “This could get terribly expensive.”

We’re sure this debate isn’t going to die down anytime soon – stay tuned.