ECB head launches charm offensive in German parliament
By Richard Carter ,AFPBERLIN -- The head of the European Central Bank launched a fierce defense of his euro-crisis strategy on Wednesday, telling German deputies the bank's bond-buying plan was neither inflationary nor covert aid to governments.
October 25, 2012, 12:10 am TWN
Addressing the German lower house of parliament, Mario Draghi sought to ease the concerns of some of his harshest critics, stressing his plan was needed for the eurozone's hardest-hit nations to benefit from the ECB's low interest rates.
The OMT program, under which the ECB will buy unlimited amounts of the bonds of struggling countries to bring down their borrowing costs, “will not lead to inflation,” Draghi stressed, according to a copy of his speech.
“In our assessment, the greater risk to price stability is currently falling prices in some euro area countries,” he said.
Nor will the plan “lead to disguised financing of governments. We have specifically designed our interventions to avoid this,” added the central bank chief.
Germany has a deep suspicion of inflationary risks because of disastrous experiences before World War II, and has a strong attachment to rigorous monetary policy.
The OMT bond-buying plan, announced in August and fleshed out in September, is widely credited as providing a turning point in the three-year eurozone debt crisis but was attacked by many in Germany.
Draghi announced that the bank would buy bonds with a life of up to three years issued by debt-wracked countries but only if they first applied for a bailout from the EU and accepted tough reforms in return.
However, in an unprecedented move, the head of Germany's powerful central bank, Jens Weidmann, expressed his displeasure in a written statement distancing himself from the program.
Weidmann feared that intervening on the secondary bond market to lower borrowing costs of the likes of Spain and Italy was tantamount to monetary financing — printing money to aid governments — which is expressly forbidden by the ECB treaties.
'It's up to governments'
Draghi also said that such actions would reduce the incentives for debt-wracked countries to make the reforms and cuts necessary to regain the confidence of the markets.
But he emphasized it would be up to national capitals to do their homework and that the ECB could not bail them out alone.
“It is governments that must set right their public finances. It is governments that must reform their economies,” Draghi said.
“And it is governments that must work together effectively to establish an institutional architecture for the euro area that best serves its citizens,” added the Italian.
While Draghi makes regular visits to the European Parliament, he rarely if ever speaks to national lawmakers and faced a two-hour grilling from German MPs skeptical about his plans to save the embattled single currency.
“It is rare for the ECB president to speak in a national parliament,” he acknowledged.
“But I am here today not only to explain the ECB's policies. I am also here to listen. I am here to listen to your views on the ECB, on the euro area economy and on the longer-term vision for Europe,” he said.
He was due to brief the media at 4:00 p.m. local time (1400 GMT).
Ahead of the meeting, Steffen Kampeter, a senior parliamentarian from Chancellor Angela Merkel's conservative CDU party, said: “The ECB's bond-buying program can be viewed critically; the concerns must be taken seriously.”
“From the federal government's point of view, it is important that the ECB acts within its mandate to fight inflation,” Kampeter told German radio.
The ECB's overriding mandate is to keep inflation “close to, but below 2 percent.”