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'ECB must buy bonds to prevent German inflation'

The Local · 29 Aug 2012, 11:44

Published: 29 Aug 2012 11:44 GMT+02:00

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Monti's comments published in the Italian daily Il Sole 24 Ore a few hours before he was due in Berlin, argued for resuming a revamped ECB bond-purchasing programme that has been opposed by Germany’s influential central bank, the Bundesbank.

Pointing to the wide spread between the interest rate or yield, on Italian and German bonds, Monti said it could lead to a "potential rise in inflation for Germany which, I believe, doesn't correspond to the ECB or German government's wishes."

The Italian premier explained that inflation could result from a substantial rise in the amount of money available within the 17-member eurozone along with low interest rates and rising bond prices.

In August, rising fuel prices pushed German inflation back up to the key level of 2.0 percent, the first time this year that inflation in Europe's top economy has risen.

Germans are reluctant to back large-scale purchases of bonds issued by heavily-indebted eurozone partners, but Europe's biggest economy is historically sensitive to the threat of inflation.

Monti declined to confirm that he would raise the issue with German Chancellor Angela Merkel during his visit, but told the Italian newspaper: "It's right to stress that this is a serious imbalance for us, but it's also a risk for those countries that today seem to benefit from it," like Germany.

Seperately, ECB head Mario Draghi said on Wednesday the bank would always act within its mandate to ensure price stability in the euro area, but exceptional measures might be required to achieve that.

“Yet it should be understood that fulfilling our mandate sometimes requires us to go beyond standard monetary policy tools," Draghi wrote in an editorial for German weekly Die Zeit.

The ECB is under intense pressure to don its fire-fighting helmet once again and re-launch a contested programme to buy up the sovereign bonds of debt-wracked countries and bring down their borrowing costs.

But Draghi's German colleague on the ECB governing council, Bundesbank chief Jens Weidmann, is strongly opposed to such a move, arguing that the practice is tantamount to monetary financing, where the central bank prints money to pay off a country's debt - something expressly forbidden under the ECB's statutes.

In an opinion piece, to be published in on Thursday but released in advance, Draghi countered that "when markets are fragmented or influenced by fears, our monetary policy signals do not reach citizens evenly across the euro area.

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"We have to fix such blockages to ensure a single monetary policy and therefore price stability for all euro area citizens," the Italian central banker said.

"This may at times require exceptional measures. But this is our responsibility as the central bank of the euro area as a whole."


The Local (news@thelocal.de)

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Your comments about this article

14:05 August 29, 2012 by pjnt
Does this translate from Italian to English as "Eat our crap or get a rash?".

If so, pass the cream, I'm getting itchy.
14:57 August 29, 2012 by smart2012
It means: if u want to keep surviving, start to act like a partner.. U r getting into recession
15:20 August 29, 2012 by pjnt
That goes both ways. I could also mean, if you want to keep surviving stop spending like a teenager and begging your 'partner' for money.
15:57 August 29, 2012 by smart2012
Correct, and as of today Italy has paid for the crap of unifying east Germany to west Germany, not viceversa
17:58 August 29, 2012 by Berlin fuer alles
Maybe the Unity part of EU is beginning to bite DE in the ass. Germany has benefited the most from the EU but moans when it has to dip into it's pocket to help it work. In fact I wish they stopped helping the Euro and let us all back to our own currency. The rest of Europe would be better off and Germany would go back into the deep recession it experienced in the 90s.
22:35 August 29, 2012 by Navigator_B
Printing money prevents inflation?
00:52 August 30, 2012 by elboertjie
Inflation is the creation of more money and rising prises are only the symptoms of inflation.

So, by the ECB creating more money (to purchase those bonds), they will increase inflation.
09:18 August 31, 2012 by Peepopaapo
Wrong, the Italians paid nothing - they did not even pay their own taxes properly. The only ones who paid for the reunification were the Germans themselves, for instance via the "Solidaritaetszuschlag".
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