The Bundesbank says Nein lowering the odds that the ECB will move quickly

08/20/2012 5:00 pm EST


Jim Jubak

Founder and Editor,

If you’re handicapping the likelihood that the European Central Bank will announce an actual program to buy Spanish and Italian government bonds at its September 6 meeting, I think the odds have turned against action.

The German Bundesbank in its monthly report released today showed no signs of backing off its opposition to bond buying by the European Central Bank. The report says that the Bundesbank “holds to the opinion that government bond purchases by the Eurosystem are to be seen critically and entail significant stability risks.”

I think this means that the European Central Bank will have to go through all the steps ECB president Mario Draghi outlined at the bank’s August 2 policy meeting before actually buying any bonds. No bond buying by the central bank until the permanent EuroZone bailout fund has done its part to reduce yields and until the countries involved officially ask for a bailout. Since the permanent fund, the European Stability Mechanism, still isn’t in operation—and since it’s fate hangs on a September 12 ruling by the German constitutional court—the fund isn’t in any position to act before the central bank meets. And, of course, neither Spain nor Italy show any inclination toward asking for an official bailout without knowing in advance what conditions funders might impose.

None of this augers well for efforts of Greek Prime Minister Antonis Samaras to negotiate looser terms for Greece as part of it bailout deal in talks that begin this week with German Chancellor Angela Merkel and then continue with French President Francois Hollande. Meanwhile back in Athens, the Greek government is struggling to come up with the most recent cuts promised under that bailout program. The total 10.8 billion euros agreed so far is still short of the 11.5 billion euros in cuts needed to meet Greek commitments. This morning the Greek government said that it had a September 14 deadline for winning the approval of its troika of funders, the European Central Bank, the International Monetary Fund, and the European Commission.
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