Weidmann resignation report turns up heat on ECB's Draghi

Fri Aug 31, 2012 11:05am EDT
 
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By Annika Breidthardt and Paul Carrel

BERLIN/FRANKFURT (Reuters) - German central bank chief Jens Weidmann's reported threat to resign has piled pressure on European Central Bank President Mario Draghi to mollify opposition to a new bond-buying plan without tying it up in so many knots it is rendered ineffective.

Weidmann, at a central bank symposium in Jackson Hole, Wyoming, refused to comment on a report in the mass circulation Bild newspaper that he had considered quitting several times in recent weeks but had been dissuaded by the German government.

He has made no secret of his displeasure with the strategy to lower Italian and Spanish borrowing costs by buying bonds.

Stepping up the pressure to attach conditions to the plan, fellow German ECB policymaker Joerg Asmussen said late on Thursday the ECB should only purchase sovereign bonds if the International Monetary Fund was involved in setting the economic reform programmes demanded in return.

Draghi is skipping this weekend's Jackson Hole retreat to try to smooth over a deep rift within the ECB over the bond scheme that is increasingly being played out in public.

The Italian will have little time to celebrate his 65th birthday on Monday as he tries to forge a deal before a September 6 ECB policy meeting, and buy euro zone governments time to negotiate legal and political hurdles to a longer-term response to the bloc's debt crisis.

"Opposition from Weidmann and reservations from some other Council members will mean that ECB bond purchases would be highly conditional, be focused on the short end and would not aim to bring yields down quite as much as Italy and Spain might like to see," said Berenberg Bank economist Holger Schmieding.

Draghi's July 26 vow to do "whatever it takes" to save the euro heralded his signature plan. But securing majority support for a plan Weidmann can live with poses the biggest balancing act he has faced since taking the ECB helm on November 1 last year.   Continued...

 
Mario Draghi (L), President of the European Central Bank (ECB) and Jens Weidmann (2nd R), President of German Bundesbank shake hands with students during the Generation Euro Students' Award ceremony at the ECB headquarters in Frankfurt June 20, 2012. REUTERS/Alex Domanski