Merkel under pressure over ECB banking union role
By Benjamin Fox
Angela Merkel is coming under mounting pressure from the Bundesbank and the sister party of her Christian Democrat (CDU) group to block EU plans to make the European Central Bank the central supervisor of a eurozone banking union.
At the June EU summit leaders indicated that a deal had been reached to create a eurozone banking union to be supervised by the Frankfurt-based bank. The EU executive is expected to present legislative proposals in mid-September. However, the German Chancellor is under pressure to prevent a further expansion of the ECB’s role in combating the debt crisis.
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On Sunday (26 August), Alexander Dobrindt, general secretary of the Bavarian Christian Social Union (CSU) which partners Merkel’s CDU in the Bundestag, accused ECB President Mario Draghi of bidding to become “the currency forger of Europe”.
Dobrindt attacked proposals reportedly being considered by the ECB to set an upper limit for bond yields facing weak members of the eurozone saying it was an attempt to "finance debt countries through the back door".
Leading board members on the Bundesbank have also piled in.
After Bundesbank executive board member Andreas Dombret told a banking conference on Thursday that supervisory powers would create "conflicts of interest" and undermine the independence of the bank, Bundesbank President Jens Wiedmann told Der Spiegal that plans for the ECB to buy up eurozone sovereign bonds would go beyond the bank's mandate.
They would amount to “state financing via the printing press”, he said. Although the EU treaty includes provisions to allow the ECB to act as a "prudential supervisor", it spells out the maintenance of ‘price stability’ as the bank's primary function.
There are long-standing concerns by German central bankers about the ECB’s actions in response to the sovereign debt crisis. In September 2011, Jürgen Stark, widely regarded as the ‘chief economist’ of the ECB, resigned in protest at the bank's role in buying Italian and Spanish bonds in a bid to ease lending costs.
One alternative would be to beef up the powers of the newly created EU bail-out fund, the European Stability Mechanism.
The ESM has powers to intervene on the bond market written into its mandate and MEPs and some member states want the fund to be given a banking license allowing it to directly recapitalize ailing banks. However, the status of the ESM is still subject to legal debate. The German constitutional court will rule on whether the ESM treaty is compatible with the country's constitution, known as 'the Basic Law,' on 12 September.
Bundesbank officials have also expressed concerns that they could be outvoted on the ECB’s Governing Council.
Under the ECB statute, key decisions on monetary policy made by its Governing Council require a two thirds majority on a one-member one-vote basis, with Germany having the same voting power as the likes of Malta and Luxembourg.
However, the voting weights in the ESM are calculated on the basis of the capital paid in by member states, with countries unable to pay their share surrendering voting rights. The ESM rule-book also gives countries a veto over all financial rescue actions which would require ‘mutual agreement’.