Germany, ECB slap down reports of bond-cap plan

BERLIN: Germany today poured cold water on a reported plan by the European Central Bank to set a cap on the borrowing costs of debt-wracked eurozone countries, terming it “very problematic.” The ECB itself dismissed the report as “absolutely misleading,” saying no such decision had yet been taken.

“Purely theoretically and speaking in the abstract, such an instrument would of course be very problematic but I am not aware of any plans in this direction,” said Martin Kotthaus, a spokesman for Germany’s finance ministry.

“You know that we basically do not comment on the ECB, which is an independent institution, but I can still say that I do not know about these plans,” added Kotthaus in a regular government briefing.

Der Spiegel newsweekly reported on Sunday that the ECB was planning to set a limit on the borrowing costs of individual countries and intervene on the markets to maintain this level.

Spain and Italy have seen their borrowing costs shoot up during the eurozone crisis to levels that forced Greece, Portugal and Ireland to seek a bailout.

The so-called spread, or difference, between benchmark German bonds and those issued by debt-wracked countries would be decisive for the proposed rate cap, Spiegel said.

ECB President Mario Draghi announced earlier in August that his institution “may” buy bonds of struggling countries if they first apply for EU bailout funds and accept tough conditions in return.

He said the details would be worked out before the next meeting of the ECB, scheduled for September 6.

Spiegel said that ECB governors would decide then whether to implement the proposed borrowing cost cap.

But an ECB spokesman said the report was “absolutely misleading” and that no such decisions had yet been taken.

“It is absolutely misleading to report on decisions, which have not yet been taken and also on individual views, which have not yet been discussed by the ECB’s governing council,” the spokesman wrote in an emailed response.

It was “also wrong to speculate on the shape of future ECB interventions.

Monetary policy is independent and undertaken strictly within the ECB mandate,” the spokesman insisted.

Germany’s central bank, the Bundesbank, for its part, reiterated its opposition to Draghi’s proposal to buy bonds in return for reforms.

The Bundesbank’s monthly report said the volume of bonds bought to drive down borrowing costs “could be unlimited and would in any event be sufficient to achieve the programme’s objectives.” But it added that “the Bundesbank remains of the opinion that, in particular, government bond purchases by the eurosystem should be viewed critically and entail, not least, substantial stability policy risks.

“It is the responsibility of fiscal policymakers — the governments and parliaments of the euro area countries — to decide whether to possibly considerably enlarge the communitisation of solvency risks; such steps should not be taken via central bank balance sheets,” the Bundesbank added.

On government debt markets, the interest rate, or yield, on 10-year Spanish debt declined substantially in morning trading on Monday to 6.211 per cent from 6.443 per cent at the close on Friday. -- AFP

Germany, ECB slap down reports of bond-cap plan

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