02/08/2012
At the centre of the eurocrisis today is the monthly meeting of the ECB 23-member governing council. And to focus president Mario Draghi's mind on the issues, the German tabloid
Bild sends him on his way with the headline, "No German cash for bankrupt states, Mr Draghi".
The picture shows the bank president last March being presented with an 1871 Prussian
pickelhaube, as "a reminder of strict Prussian discipline against inflation". If he does not play ball, the paper wants its helmet back.
This lead item in a popular tabloid illustrates once again the
deteriorating sentiment in Germany, where the euro has completely lost its shine.
Bild also notes that Italy and Spain will need â¬1 trillion new money to cover ongoing costs up to 2014, and will have to sell government bonds to cover the debt. But, it says, ordinary investors like banks and insurance companies no longer trust the paper â hence the pressure for the ECB to step in.
But Germany would have to cover 27 percent of the debt, and CSU general secretary, Alexander Dobrindt is recruited to say that if the ECB provides the money, it threatens the 70-year inflation record.
Nevertheless, from the more sober
Handelsblatt, we learn that Draghi is to propose massive bond purchasing by the ECB, followed by the ESM when it starts operating, all at a fixed long-term interest rate.
The ECB has already "invested" â¬211 billion in bonds from failing eurozone countries, which has
Bundesbank president, Jens Weidmann, stepping in to counter today's agenda, saying that ECB's independence "requires it to respect and not overstep its own mandate".
This move puts Germany at odds with the US, Britain and the ailing southern states, which are argue for a massive intervention by the ECB. Strong countries in central and northern Europe, such as Germany, the Netherlands and Finland, are opposed to the idea, but
Handelsblatt reminds us that the ultimate decision must wait until the Karlsruhe judgement on 12 September.
Draghi and his council, therefore, remain limited as to what they can do, reinforcing yet again the theatrical aspects of this drama, where talk rather than action is the dominant activity. Even
Reuters has noted the "action gap", remarking that the ECB has little margin for error to maintain its credibility and avoid bond yields climbing in the indebted countries.
"Draghi has unfortunately painted himself into a corner," says JP Morgan analyst Pavan Wadhwa. "The ECB does need to demonstrate its credibility ... Otherwise Draghi will lose face completely".
