25.8.2011
By Simon Miller
The German president Christian Wulf has questioned the legality of bond purchases by the European Central Bank.
The latest broadside from a leading German official came as Greece’s debt again reached the levels seen before the July agreement on a second bailout.
Speaking at a forum of Nobel economists at Lindau in southern German, Wulf commented: “I regard the huge buy-up of bonds of individual states by the ECB as legally and politically questionable. Article 123 of the Treaty on the EU’s workings prohibits the ECB from directly purchasing debt instruments, in order to safeguard the central bank’s independence.”
He continued: “This prohibition only makes sense if those responsible do not get around it by making substantial purchases on the secondary market,”
The president, whose role is largely symbolic, pointed out that Germany’s public debt has reached 83pc of GDP and asked whether there would be anyone around to rescue the rescuers if the dominos keep falling.
“We Germans mustn’t allow an inflated sense of the strength of the rescuers to take hold,” he said.
Wulf continued: “Solidarity is the core of the European Idea, but it is a misunderstanding to measure solidarity in terms of willingness to act as guarantor or to incur shared debts. With whom would you be willing to take out a joint loan, or stand as guarantor? For your own children? Hopefully yes. For more distant relations it gets a bit more difficult.”
The president’s comments were the latest demonstration of a rupture in the leading German party, the Christian Democratic Union. Members are becoming increasingly concerned over the amount of money Germany is using to help out troubled eurozone members. In two weeks’ time, its Constitutional Court is to rule on whether the bailout out breaks Germany’s constitution and the issue is so politically explosive that a proposal to give the European Financial Stability Facility greater powers and money was presented to five German leaders in secret on Sunday.
Wulf also warned German Chancellor and CDU leader Angela Merkel that political leaders do not need to break their holidays every time there was trouble in the market.
“They have to stop reacting frantically to every fall on the stock markets. They mustn’t allow themselves to be led around the nose by banks, rating agencies or the erratic media,” he said.
“This strikes at the very core of our democracies. Decisions have to be made in parliament in a liberal democracy. That is where legitimacy lies.”
Greek 10-year bond yields climbed 46bps to 18.35 in London this morning from a euro-era record 18.54% while the spread between Greek and German 10-year yields widened to as much as 1,627 basis points as European leaders meet today to discuss the Finnish collateralisation deal with Greece.
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