Bankers condemn ECB purchase of Greek bonds

Germany's national bank, the Deutsche Bundesbank, has shown signs of irritation that the European Central Bank (ECB) has chosen to buy the state bonds of highly indebted eurozone countries.

Bankers condemn ECB purchase of Greek bonds
Photo: DPA

According to a report in news magazine Der Spiegel, bankers at the Bundesbank see no reason why the ECB has chosen to buy state bonds of heavily indebted countries like Greece, when a multi-billion-euro rescue package has already been agreed.

The report says the ECB has already spent nearly €40 billion on these government securities, including €25 billion on Greek bonds, while eurozone countries recently signed a rescue package for Greece worth around €110 billion, some €22 billion of which will be contributed by Germany. A common rescue fund for eurozone countries is in the process of being set up.

The bankers complained that by buying the Greek bonds, the ECB was keeping their price artificially high, and other banks, notably French ones, were consequently using the opportunity to sell their Greek bonds in order to clean up their finances.

The report claims that some high-ranking German bankers suspect a French conspiracy, saying that ECB head Jean-Claude Trichet, a Frenchman, had been put under pressure by French president Nicolas Sarkozy to break one of the ECB’s golden rules – never to buy government bonds from member states.

The purchase of Greek bonds by the ECB does not serve German interests for two reasons. Firstly, Germany has a 27 percent stake in the ECB, and therefore carries some of the risk, and secondly German banks are not allowed to sell their Greek bonds to the ECB, having made an agreement with German Finance Minister Wolfgang Schäuble to keep them until May 2013.

A spokesman for the Bundesbank denied the magazine’s claims, but refused to comment further.

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Inflation rose in Germany in December: report

Inflation in Europe's largest economy Germany clambered higher in December, official data showed Friday, but remained short of the European Central Bank's target for the 19-nation eurozone.

Inflation rose in Germany in December: report
Prices in Germany are rising, but not as fast as they should be. Photo: Jens Büttner / zb / dpa
Price growth hit 1.5 percent year-on-year last month, statistics authority Destatis said, some 0.4 percentage points higher than in November.
And it reached the same level when measured using the Harmonised Index of Consumer Prices (HICP) yardstick preferred by the ECB.
But while German price growth was headed in the right direction, it was still well short of the ECB's just-below-two-percent goal. Over the full year 2019, inflation averaged just 1.4 percent.
“There is little sign of sustained growing price pressure that could prompt the ECB to rethink its ultra-expansive monetary policy,” said economist Uwe Burkert of LBBW bank.
Here's a graph put together by the German newswire DPA, showing how the inflation rate in Germany has fluctuated between 2008 and 2019. 
The ECB has set interest rates at historic lows, granted hundreds of billions of euros in cheap loans to banks, and bought more than 2.6 trillion euros ($2.9 trillion) of bonds in efforts to keep credit flowing to the economy, stoking growth and inflation.
But it has fallen short of its eurozone-wide price growth target for years, predicting last month it would inch up to just 1.6 percent by 2022.
Economists have pointed to both uncertainty over political events, like trade wars and Brexit, and long-term developments like ageing populations as possible reasons for sluggish growth and inflation.
Under new chief Christine Lagarde, the ECB plans to launch a wide-ranging “strategic review” this year, its first since 2003, that could adjust its tools or even reexamine the inflation target itself.
In the meantime, she has urged countries — like Germany — with sound government finances to lift spending in hopes of juicing the economy.