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09 February 2012

FT: Germans concerned over Draghi liquidity offer


Mario Draghi has run into Bundesbank resistance over easing access to European Central Bank offers of three-year liquidity for eurozone banks, highlighting German unease over the measures the ECB president has taken to turn the region's fortunes.

The ECB’s governing council gave the go-ahead for seven national central banks to expand the assets that can be used as collateral when obtaining liquidity. The measures could increase significantly the number of banks tapping a second offer of three year loans this month, and theoretically allow them to borrow an extra €200 billion.

However, Jens Weidmann, Bundesbank president, voiced concerns about a lowering of credit standards, and Mr Draghi admitted the council decision had not been unanimous. The Bundesbank’s concern is significant because Mr Draghi has tried to repair the damage created by conflicts with sceptical German policymakers over eurozone crisis measures under Jean-Claude Trichet, his predecessor.

The ECB’s three-year longer-term refinancing operations, launched late last year, have substantially eased funding problems faced by banks and boosted confidence in the stability of Europe’s monetary union. The Bundesbank initially went along with the measures but appears to have become concerned. Mr Weidmann warned last week that “too generous” liquidity provision could create the wrong incentives for eurozone banks, storing up inflation risks for the future. Its objections  reflected worries about imbalances building in the eurozone financial system and the lack of incentives to banks to start lending to each other again.

Mr Draghi argued that the ECB’s actions have averted a serious credit crunch in the eurozone. He struck a cautiously upbeat tone on the eurozone economic outlook after the ECB council left its main policy rate unchanged on Thursday at the record low of 1 per cent. Mr Draghi dropped a previous warning of “substantial” downside risks to growth, talking simply of “downside risks” – a change seen by analysts as making interest rates cuts less likely in coming months.

Full article (FT subscription required)



© Financial Times


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