Richard North, 27/08/2012  

Spiegel 029-mwd.jpg

Headlined in Spiegel yesterday, repeated in most German newspapers – even Bild - and spilling over into Reuters and the British press, is a further instalment of the ongoing battle between the Bundesbank and the ECB. But this is only the latest round in the war of words that some believe had already been won by the ECB. 

However, Spiegel describes Bundesbank chief Jens Weidmann as going on a "collision course" with the ECB. Buying government bonds is dangerous, a burden on taxpayers and would lead to new problems, he says, then declaring in a direct attack on  Draghi's empire: "central bank financing can be addictive like a drug".

Further digging into the ECB, Weidmann criticises its plans to launch a new programme of purchasing government bonds. "Such a policy is for me too close to public finance by printing", he warns, then declaring: "In democracies, parliaments should decide on such an extensive pooling of risks, not central banks".

If you buy the Euro-banks' government bonds of individual countries, "the papers end up in the balance sheet of the Eurosystem", Weidmann explains. "Ultimately, the money has to be found by the taxpayers of all other countries". The basic problems are not solved in this way, he concludes.

Defending his "aggressive communication policy", Weidmann states that, "If monetary policy allows itself to become a comprehensive political problem solver, its real goal risks moving further and further into the background". Therefore, he says, the ECB should not "guarantee keeping member states in the eurozone at any price".

In a plea for openness, he says that, "We central bankers are currently acting in a border region, and have to interact on more fundamental issues. Therefore, we must also be prepared to explain the convictions that we hold in the Council to the public", adding: "The Governing Council is not the Politburo".

And despite the focus on Weidmann, Handelsblatt reminds us that he is not alone. A recent edition of Welt had former ECB chief economist Jürgen Stark arguing that the funding planned by the ECB would be "a clear breach of European law".

Currently, Weidmann is also supported by CSU General Secretary Alexander Dobrindt, who in Bild am Sonntag controversially branded Draghi's plans for the euro as "highly dangerous", calling the ECB president the "forger of Europe".

Dobrindt, incidentally, thinks Greece would be better off out of the eurozone, following which, he says, "we need a Marshall Plan for the economic reconstruction of the country".

Now, even Merkel has been dragged into the dispute, having been asked in a television interview for the ARD "report from Berlin" programme to comment on Weidmann's words. She praised Weidmann for speaking out about his doubts and said she saw strong Bundesbank influence within the ECB as positive. although she was reported as taking care not to voice any support for his criticism of Draghi's policies.

What makes the attacks on the ECB all so very strange, though, is that, effectively, Draghi has already given up. He has signalled that he intends to wait until after the Karlsruhe ruling on 12 September before launching any initiatives.

Despite that, Spiegel is still telling us that the ECB governing council will, at its meeting on 6 September, decide to look at bond purchases. I guess we already know the outcome. But, whatever is decided, this controversy is very far from over.

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