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Despite strong opposition from Jens Weidmann, the Bundesbank president, to a new bond-buying programme, by September Mr Draghi was ready to announce “outright monetary transactions” with the backing of the 16 other national central bank chiefs and his four executive board colleagues.
The scheme has been hailed as a breakthrough that pits anyone speculating on a euro break-up against the full might of the central bank. With no country yet to sign up for the fiscal conditions that would allow the bank to deploy the mechanism, it has already had a demonstrable effect in lowering the borrowing costs of countries such as Spain and Italy from their summer peaks.
The OMT scheme bears great similarities to another three-letter acronym pioneered by Jean-Claude Trichet, Mr Draghi’s predecessor. That bond-buying programme, the securities market programme, or SMP, similarly horrified German central bank policy-makers, and was hobbled as a result.
OMT has been designed to address many of the problems of the SMP. It comes with fiscal conditions attached, it is unlimited in scope, it focuses on shorter maturity bonds, and it comes with a monetary policy narrative seeking to explain why a central bank whose mandate is price stability should be buying sovereign debt.
It also comes with the German criticisms contained and isolated. Mr Draghi does not have to contend with Axel Weber, the former Bundesbank president who had been the favourite to succeed Mr Trichet, or Jürgen Stark, former executive board member. Both were fierce proponents of the classical Bundesbank doctrine that a central bank focuses solely on controlling inflation. Instead, Mr Draghi has the support of Jörg Asmussen, the current German member of the executive board, and has won the tacit backing of Angela Merkel, the German chancellor.
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