The war of words between Europe's unelected monetary-policy dictator Mario Draghi and Germany's "but it's us that pays for all this" Bundesbank has been gaining momentum since Jens Weidmann penned his Op-Ed slamming Draghi's OMT 'whatever it takes' as "too close to state financing" in 2012. A week ago, Weidmann stepped up the rhetoric by claiming ECB policy is "hostage to politics" and has lost its indepdendence - warning Draghi's dictatorial policies were leading Europe down a "dangerous path." But now, as pressure grows from the Spanish (record unemployment, record bad debt, record low yields), Italian (record unemployment, record debt-to-GDP, record low yields) and French (record unemployment, treaty-busting-deficits, record low yields) for Draghi to monetize more assets, he has struck back in Focus magazine, blasting Weidmann is "impossible" to work with because the Germans "say no to everything." Dis-union...
Weidmann (2012): "When the central banks of the euro zone purchase the sovereign bonds of individual countries, these bonds end up on the Eurosystem's balance sheet. Ultimately the taxpayers of all other countries have to take responsibility for this. In democracies, it's the parliaments that should decide on such a far-reaching collectivization of risks, and not the central banks. Europe is proud of its democratic principles; they characterize European identity. That's something else that we should bear in mind."
Weidmann (2012): "The central bank is responsible for monetary stability, while national and European politicians decide on the composition of the monetary union. It wasn't the central banks that decided which countries are allowed to join the monetary union, but rather the governments."
Weidmann (2012): "I don't take my cue from the German government's position. That's part of being independent."
Weidmann (2012): "I want to work to make sure the euro stays as strong as the deutsche mark was."
Weidmann (2014): "There is a risk of monetary policy, especially in the euro area, being held hostage by politics,"
Weidmann (2014): "These concerns are particularly acute whenever the central bank buys specifically the most risky sovereign bonds... with government and corporate borrowing costs already super low, such a policy would have limited effect. Tying fiscal policies together through ECB bond purchases is a dangerous path."
And now Draghi responds... (via Focus Magazine)
The conflict between ECB President Mario Draghiand Bundesbank President Jens Weidmann over the course of the European Central Bank is more severe than expected, and has become “almost impossible,”
The Italian ECB chief characterizes the Bundesbank president after statements from witnesses internally on a regular basis with the three German words "No to all".
According to insiders, therefore Draghi is no longer even trying to win the Germans for its programs.
Since July there was a direct contact between the two presidents of the ECB and the Bundesbank outside of the two Council meetings in early September and early October.
In other words, the Germans won;t let me do what I want - so I'm going to ignore them... this leaves the Germans with few options - none of them 'good' for a European Union.