Socio-Economics History Blog

Socio-Economics History Blog

Germany Fires Cannon Shot Across Europe’s Bows!

by mosesman
There is widespread concerns in Germany that ECB intervention in the Italian and Spanish bond markets mark a dangerous escalation Photo: Bloomberg News
  • The financial quakes are getting bigger and bigger. You do not need to be a genius to see the coming financial tsunami. September and October are the dangerous months for the financial markets. Yes, it looks increasingly likely the sovereign debt collapse will start in the next 2 months! (emphasis mine)
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    Germany fires cannon shot across Europe’s bows
    By , http://www.telegraph.co.uk/
    German President Christian Wulff has accused the European Central Bank of violating its treaty mandate with the mass purchase of southern European bonds.
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    In a cannon shot across Europe’s bows, he warned that Germany is reaching bailout exhaustion and cannot allow its own democracy to be undermined by EU mayhem.
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    “I regard the huge buy-up of bonds of individual states by the ECB as legally and politically questionable. Article 123 of the Treaty on the EU’s workings prohibits the ECB from directly purchasing debt instruments, in order to safeguard the central bank’s independence,” he said.
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    “This prohibition only makes sense if those responsible do not get around it by making substantial purchases on the secondary market,” he said, speaking at a forum of half the world’s Nobel economists on Lake Constance to review the errors of the profession over recent years.
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    Mr Wulff said the ECB had gone “way beyond the bounds of their mandate” by purchasing €110bn (£96.6bn) of bonds, echoing widespread concerns in Germany that ECB intervention in the Italian and Spanish bond markets this month mark a dangerous escalation.
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    He did not explain what else the ECB could have done once the bond spreads of these two big economies began to spiral out of control in early August, posing an imminent threat to monetary union and Europe’s financial system.
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    The blistering attack follows equally harsh words by the Bundesbank in its monthly report. The bank slammed the ECB’s bond purchases and also warned that the EU’s broader bail-out machinery violates EU treaties and lacks “democratic legitimacy”.
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    The combined attacks come just two weeks before the German constitutional court rules on the legality of the various bailout policies. The verdict is expected on September 7.
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    The tone of language from two of Germany’s most respected institutions suggests that both markets and Europe’s political establishment have been complacent in assuming that the court would rubberstamp the EU summit deals in Brussels.
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    Nobel laureate Joe Stiglitz told the forum that the euro is likely to fall apart unless Germany accepts some form of fiscal union. “More austerity for Greece and Spain is not the answer. Medieval blood-letting will kill the patient, and democracies won’t put up with this kind of medicine.”
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    He warned that Germany is “going to lose a lot of money one way of another” since the exit of southern states will inflict large banking losses. The country might as well opt to shore up EMU and prevent its great dream of European unity “going down the drain”.
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    Chancellor Angela Merkel has struggled all this week to placate angry critics of her bailout policies within the Christian Democrat (CDU) party. Labour minister Ursula von der Leyen said countries that need rescues should be forced to put up their “gold reserves and industrial assets” as collateral, a sign that rising figures within the CDU are staking out eurosceptic positions as popular fury mounts.
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    Mr Wulff said Germany’s public debt has reached 83pc of GDP and asked who will “rescue the rescuers?” as the dominoes keep falling. “We Germans mustn’t allow an inflated sense of the strength of the rescuers to take hold,” he said.
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    …. for the full article click here!

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