Bundesbank Blasts Draghi For Breaking Bailout Taboo

Earlier today, we noted that Germany (or at least the Finance Ministry) has thrown its support behind a Greek referendum on euro membership. The idea is that if Greeks vote to remain in the currency bloc, they are essentially also voting to accept that their lifestyles are about to get a lot more austere in exchange for Germany’s willingness to help the country avert an outright economic collapse. We also highlighted Russia’s politically-motivated move to convince Greece to join the BRICS bank before closing with a recap of Yanis Varoufakis’ latest speech to parliament in which the increasingly unhinged FinMin suggested Greece’s debt to the ECB should be wrapped up and “sent overnight into the distant future,” before claiming that the idea of a debt swap “filled Mario Darghi’s soul with fear” because the ECB chief is terrified of the Bundesbank. 

The comedic value of Varoufakis’ latest tirade aside, there’s certainly some truth to the suggestion that the German central bank and its head Jens Weidmann are skeptical of PSPP and deeply concerned that the ELA lifeline keeping the Greek banking sector afloat amounts to the monetary financing of the Greek government (because after all, when Greek banks use ECB loans to keep the Greek treasury afloat, it’s difficult to explain how that doesn’t amount to the central bank financing the Greek government). 

Apparently at his wits’ end with a world consumed by monetary madness, Weidmann let his feelings be known on Thursday not only about the ECB’s support of the Greek banking sector via ELA, but about QE in general. Reuters has more:

The head of Germany's Bundesbank ripped into the European Central Bank on Thursday, saying emergency funding for Greek banks broke the taboo of financing governments and it was not up to central banks to decide who was or wasn't in the euro zone.


Jens Weidmann also said it was questionable whether money printing by the ECB to boost the euro zone economy and halt deflation was necessary…


"Given the ban on monetary financing of states, I don't think it's ok that banks which don't have access to the markets are being granted loans which then finance the bonds of their government, which doesn't have access to the markets itself," Weidmann told German newspaper Handelsblatt according to advance extracts of an interview to be published on Friday.


Asked whether he would be prepared to stop emergency funding to Greek banks and therefore force Athens out of the euro zone, Weidmann said central banks were not responsible for "the make-up of the euro zone or granting aid payments".


Weidmann also hit out at the ECB's bond-buying scheme known as quantitative easing (QE), saying: "The question remains whether the QE programme was really necessary given our primary aim of price stability and how we should assess the risks and side-effects that inevitably come with such a scheme."


He said QE made Eurosystem central banks the biggest creditor of governments and monetary and fiscal policy were becoming increasingly interconnected.


"That can increase the political pressure on central banks when it comes to future monetary policy decisions, especially as member states' drive to reform is also being weakened."

Weidmann has for some time been the lone voice of reason among EU officials (with the exception of the incorrigible Herr Schaueble) and he is of course entirely correct in his assessment because ELA is indeed akin to the monetary financing of governments and of course when it comes to the "risks and side-effects" of QE "schemes", no one knows better than Weidmann as he is being forced, on a monthly basis, to break the market for the debt issued by his own government by commandeering all bunds yielding better than -0.20% and hoarding them on the Bundesbank's balance sheet. 

Here's a clip from the Weidmann interview: