ECB official: bond buying would be within mandate

 
Julian Harris
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A SENIOR official at the European Central Bank (ECB) has reassured Germany that any new bond buying will not amount to back-door funding of struggling Eurozone states.

Joerg Asmussen’s remarks, made in Hamburg yesterday, will heighten expectations that the ECB is set to act to bring down ailing government’s borrowing costs.

“Under the framework of the new programme, the ECB will only buy bonds with short maturities,” Asmussen said.

“The whole discussion will be led by the requirement that any concerns about treaty-violating state financing are dispelled. We will only act within our mandate.”

The ECB’s governing council is meeting next Thursday and will discuss measures to ease the debt crisis.

Jens Weidmann, the chief of Germany’s central bank, warned on Sunday that more ECB bond-purchases could “become addictive like a drug.”

“Such a policy is for me close to state financing via the printing press,” Weidmann told the German magazine Der Spiegel.

The euro edged slightly upwards against the dollar yesterday as some investors decided that weak economic data has increased the chance of more stimulus from European authorities. The euro hit a session high of $1.2535, after the German Ifo index of business morale sank for a fourth straight month in August to reach its lowest level since March 2010.

“This clearly shows that Germany cannot escape unharmed if the rest of the Eurozone falls into a deep recession,” said Boris Schlossberg of BK Asset Management in New York. “Policymakers may now temper their insistence on austerity and instead pursue more stimulative policies.”

Germany’s Wolfgang Schaeuble said yesterday that he and fellow Eurozone finance ministers will form a working group to discuss proposals such as a new fiscal and banking union.

Meanwhile Chancellor Angela Merkel and her foreign minister Guido Westerwelle both made pleas for German politicians to restrain their comments over Greece. Earlier, Christian Social Union leader Alexander Dobrindt – a political ally of Merkel’s – said that he expects Greece to leave the Eurozone as soon as next year.