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23rd Jun 2018

Portuguese head breaks ranks, urges ECB bond-buying

Portugal's President Anibal Cavaco Silva has broken the government's tacit pro-German line and urged the European Central Bank (ECB) to start buying bonds from troubled eurozone countries.

"Why not have the ECB start applying now to public debt securities from Portugal and Ireland the orientation announced by its president," Cavaco Silva said in a message posted on his Facebook page on Thursday (9 August).

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  • Silva's Facebook page - Lisbon has so far been a poster child for southern bailouts (Photo: facebook.com)

He was referring to statements made last week by ECB chief Mario Draghi that the bank could start buying distressed bond, but only in September, pending an internal review and a vote by the bank's board.

The German board member, central bank chief Jens Weidmann, so far opposes the move, which is a taboo in German politics.

Portugal signed up to €78 billion in aid from the eurozone bailout fund and the International Monetary Fund (IMF) in 2011, after Greece and Ireland.

EU and German politicians have constantly praised the government in Lisbon for its reforms in an attempt to show that not all southern countries are like Greece.

Popular resistance to austerity has been less visible in Portugal than in Greece and Spain, even though unemployment remains over 15 percent and the economy is still in recession.

The open Portuguese appeal comes after more veiled demands from the Spanish and Italian governments, as well as the IMF, for the ECB to play a new role.

Unacceptable in Germany's view, which wants the ECB to act on the model of the Bundesbank - which is completely independent from politics - and to stick to its original EU mandate on keeping down inflation.

The ECB has a problem in asking EU states which it helps with cheap loans or bond-buying to make political reforms and budget cuts because it does not have any democratic oversight.

"If the ECB will buy any more bonds, it would take up a distribution role for which it has no mandate or democratic legitimacy," Claudia Buch, one of the German economists on a recently-created panel of "wise men" on ECB reforms, told Der Spiegel in its latest print edition.

ECB in nuanced denial of yield cap plans

The European Central Bank has condemned media reports about a bold plan for the bank to bring down eurozone government borrowing costs but has not denied the idea outright.

Economic gloom poses problems for bailed-out countries

Recession-hit Portugal is likely to miss its deficit target this year, the troika of international lenders is expected to conclude in September. Meanwhile, lower growth in Ireland may also bring troubles further down the road.

Portugal in crisis after 1mn say No to austerity

Portugal is in political crisis as it struggles with a major popular backlash in the face of troika-approved austerity measures that would raise social contributions for employees.

ECB under pressure on bond-buying

Pressure is mounting on the ECB ahead of a key meeting on whether to buy Italian and Spanish bonds to help stabilise the euro.

Opinion

The risks behind the 'green bond' boom

The EU should not overuse the financial system in order to achieve environmental goals, or it risks the emergence of a green bond bubble which would be detrimental to the financial sector and hinder the achievement of climate targets.

Opinion

Eurozone needs institutional reform

Both the examples of Greece and Italy test the limits of a system with inherent weaknesses that feeds internal gaps, strengthens deficits and debts in the European South, and surpluses in the European North respectively.

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