Mario Draghi Is Becoming Germany's Most Hated Man

Tyler Durden's picture

Back in September, before the transition from then ECB head J.C. Trichet to current Goldman plant and uber printer Mario Draghi we asked whether "Trichet will disgrace his already discredited central banker career by pushing a rate cut before he is swept out of the corner office by Mario Draghi, or will the former Goldmanite Italian become the most hated man in Germany soon, after he proceeds to ease, even as Germany still experiences Chinese inflationary re-exports. The answer will be all too clear in just a few months." Sure enough, following a whopping €1 trillion in incremental liquidity released by the ECB in the three shorts months since Draghi's ascension on November 1, all under the guise that the ECB is not printing when it most certainly is, albeit "hidden" by the idiotic claim that it accepts collateral for said printing (what collateral - Italian and Spanish bonds, which will become worthless the second even more printing is required in a few short months? This is run time collateral that can be issued "just in time" to convert it to even more cash as UniCredit did again today), the answer is becoming clear. Slowly but surely the realization is dawning on Germany that while it was sleeping, perfectly confused by lies spoken in a soothing Italian accent that the ECB will not print, not only did Draghi reflate the ECB's balance sheet by an unprecedented amount in a very short time, in the process not only sending Brent in Euros to all time highs (wink, wink, inflation, as today's European CPI confirmed coming in at 2.7% or higher than estimated) but also putting the BUBA in jeopardy with nearly half a trillion in Eurosystem"receivables" which it will most likely never collect.

Reuters on how the revulsion toward the ECB head is slowly forming:

Some European Central Bank policymakers are alarmed that a dramatic loosening of lending policy stemming from a 1-trillion-euro wave of cash unleashed into the financial system will fuel imbalances in the euro zone and stoke inflationary pressures.

 

Led by Bundesbank chief Jens Weidmann, who was previously a top advisor to German Chancellor Angela Merkel, they are pushing for the central bank to think about an exit strategy after it fed banks 530 billion euros on Wednesday in the second of two cheap, ultra-long funding operations.

 

The signs of internal division add weight to what sources have already told Reuters: that the central bank does not intend to offer any more cheap three-year cash. The chances of interest rates dropping below their record low one percent also appear to be diminishing.

 

The huge take-up at Wednesday's so-called LTRO meant that in the space of two months the ECB has injected over a trillion euros into the financial system.

End result: EUR Brent is at a record again:

More:

Draghi can ill afford to ignore the ECB hawks' concerns.

 

Last year, two German heavyweights on the Governing Council quit in protest at the ECB's controversial programme to buy sovereign bonds - a measure they felt came too close to financing governments. Weidmann too opposes this option.

 

Some within the ECB have also lost on some key policy decisions last December - a cut in interest rates to a record low of 1 percent, and the loosening of the collateral rules.

 

The Bundesbank also pushed for a higher interest rate on the 3-year LTROs, but failed to convince other Council members.

 

Draghi only assumed the ECB presidency after Weidmann's predecessor, Axel Weber, quit early last year, clearing the way for the Italian to take the helm of the euro zone's most powerful institution despite the concerns of many in Germany.

 

The Italian risks a deep and damaging split on the Council if he tests the hawks too far, weakening the ECB just a few months into his eight-year presidency.

But, but, it's all in the name of perpetuating the ponzi. Forget that it is the Germans who are paying the bill.

Draghi is already at odds with some powerful voices in Germany, taking a nonchalant view last month about the TARGET2 imbalances.

 

The Bundesbank considers the TARGET2 imbalances a symptom of underlying problems in the currency bloc and is watching them with increasing concern as they reflect a stronger reliance of banks in weaker euro zone countries on cheap ECB funding and growing risks on those countries' central banks balance sheets.

 

If the euro zone breaks up - which few expect - the larger national central banks in the 17-country bloc would be left with a greater share of the potential losses, as they contribute a greater share of the ECB capital.

 

Hans-Werner Sinn, president of Germany's influential Ifo think-tank, has argued that stronger countries such are financing the deficit extravaganzas of Greece, Portugal and Ireland via the euro zone cross-border payment system.

As noted, Germans are getting angry:

Against this backdrop, it is perhaps no coincidence that details of his letter to Draghi emerged in the Frankfurter Allgemeine Zeitung (FAZ) - a respected German daily.

 

In his letter, Weidmann called for a return to collateral rules as they had been before the crisis, the FAZ said.

 

Weidmann had already expressed concern that "too generous" supply of liquidity could create risky incentives for banks, which could in turn store up future inflation risks.

 

Ewald Nowotny, a member of the ECB's 23-man Governing Council, went further on Tuesday and said the bank should think about an exit strategy after its massive cash injections.

Funny - the Fed said it would think of an exit strategy two years ago. Now the EURUSD is pricing in at least $1 trillion in more QE by the Fed over the next few months. As is the stock market, as will crude, following a few margin hikes of course, when it hits $120+.

Luckily, the CPI ex-everything, is transitorily flat.