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29 February 2012

FT: Bundesbank at odds with ECB over loans


The head of Germany's Bundesbank has launched a powerful attack on Mario Draghi, president of the European Central Bank, in a sign of mounting concern in Europe's biggest economy at measures being taken to try to contain the eurozone financial crisis.

Jens Weidmann’s warning of increasing risk stemming from some ECB policies highlights fears of potential costs for Germany from its role as the eurozone’s biggest creditor nation, and may spark fresh doubts about the eurozone’s ability to deal with the long-running banking and sovereign debt crisis.

Mr Weidmann, who has an influential voice on the ECB’s governing council, said the central bank risked endangering its reputation and called for a quick return to stricter rules on the collateral that the ECB accepts from banks in return for central bank funds.

But Peter Sands, chief executive of Standard Chartered, said that the glut of central bank money risked “laying the seeds for the next crisis”. Mr Sands, whose Asia-focused bank is insulated from the eurozone crisis, said that no thought had been given to long-term consequences. “It is not clear what the exit strategy is. What happens in three years’ time when it needs to be refinanced?”

The ECB figure included funds rolled over from shorter-dated operations. About €310 billion of net new liquidity was added to the system – much more than in December.

“This is at the higher end of market expectations and should have a positive impact on risk assets”, said Divyang Shah, global strategist at IFR Markets.

Full article (FT subscription required)



© Financial Times


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