Weidmann resignation threat piles pressure on Draghi

German central bank chief Jens Weidmann’s reported threat to resign has piled pressure on ECB 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 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 that the ECB should only purchase sovereign bonds if the IMF 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.

He will have little time to celebrate his 65th birthday on Monday as he tries to forge a deal before a Sep 6 ECB policy meeting, and buy eurozone governments more time to negotiate legal and political hurdles to a longer-term response to the bloc’s debt crisis.

Holger Schmieding, Berenberg Bank economist, said: “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.”

Draghi’s Jul 26 promise 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 Nov 1.

Executive board member Benoit Coeure yesterday said the bank would do everything in its mandate to preserve the integrity of the euro — a line similar to Draghi’s in late July.

Coeure said the ECB was studying ways of intervening in the short-term bond market based on strict conditionality and the countries concerned agreeing to aid programmes with the eurozone bailout funds.

Weidmann is not a lone voice on the governing council, and his opposition to a new round of bond buying means Draghi must attach strings to the plan to keep pressure on governments to reform and tighten their budgets.

— Reuters