Spiegel: Violation of Treaties - Berlin wary of ECB plan to help southern Europe

13 May 2013

The German finance minister is deeply critical of an ECB idea to purchase asset-backed securities, fearing that the plan could be little more than "obscured state financing", a no-no for the ECB. Schäuble said that such a plan would violate EU treaties.

The ECB would like to encourage banks in southern Europe to issue more loans. But Berlin is concerned that a planned move to trigger such lending could violate EU treaties. Mr Schäuble is deeply critical of an ECB idea to purchase asset-backed securities, fearing that the plan could be little more than "obscured state financing", a no-no for the ECB. Schäuble said that such a plan would violate European Union treaties. The motivation for considering such a move is clear. The ECB is eager to stimulate bank lending, particularly in Southern European countries where the debt crisis has made banks wary of issuing loans. But Schäuble is concerned that an ECB programme of buying asset-backed securities could amount to the bank taking over some €70 billion in debt owed by Italy to private creditors.

Asset-backed securities were a key element in the housing bubble and served as a tool to bundle sub-prime mortgages -- investments which ultimately proved toxic for the banks that bought large quantities of them. They also, however, can be an important tool in freeing up capital to allow banks to lend more. Schäuble, however, is not just concerned about the threat Draghi might pose to EU treaties. He also on Monday voiced his concern that efforts to push ahead a bloc-wide banking union could be in violation of EU rules. Germany has long been pursuing a "banking union" as a way to prevent a repeat of the euro crisis in the future. Eurozone leaders would like a separate bank bailout fund, the ability to wind down banks that run into significant difficulties and clear rules regarding when and if taxpayers must be responsible for a bailout.

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