ECB’s purchase of government bonds


Guys! I’m back! The story I am going to tell you today is about ‘the Global Financial Crisis (GFC)’. You might think, ‘it’s already a famous story’, as having heard a lot about it since 2008. Yes, I know that you’ve been exposed to lots of news on GFC, but please hear me out carefully again. Why? GFC is still on-going, and there is a hot issue rising these days!

On August 2, 2012 there was an announcement by the president of ECB (European Central Bank), Mario Draghi, saying that he will implement every possible measure to stabilize the Euro Zone. The main measure he is propelling is purchasing more government bonds. However, despite his exceptional proposal, investors’ attention is focused on the policy stance by Germany. The Prime Minister of Germany, Angela Merkel, said that she will provide full supports to ECB. However, despite Merkel’s saying, Bundesbank, the Central Bank of Germany, is consistently objecting to purchasing government bonds of other EU nations. According to the Reuters, Bundesbank is to go against Euro Zone to avoid any serious risk; it seems that Bundesbank regards purchasing the government bonds as distressed-debts.

According to the report published by Bundesbanks, interchanging callable risks should be decided by the government and parliament, in other words, they are not supposed to use capital funds of the central bank. The reason why all the investors and ECB are feeling different of the Bundesbank is probably because the Bundesbank owns the largest stake of ECB and at the same time, Germany is the biggest creditor nation.

CNBC broadcasting company announced that ECB is indeed aware of the fact that it needs to purchase government bonds of other nations at financial risks. However, it is unlikely for Bundesbank to purchase other nations’ government bonds, being worried about a possible slowing-down of domestic economy in Germany. Bundesbank’s monthly report says that they firmly trust the financial capabilities of Germany, while recognizing that the strong financial basis may not last forever. The report adds that, ‘the government is the principal agent with authorities to arrange financial affairs.’

What do you guys think about this situation? It should be such a hard decision for Bundesbank to decide which stance it will take. Bundesbank should be careful to balance out its measures between polices for domestic economy and EU affairs. The current financial crisis in Europe warns Germany of risks all around Europe, which may become a threat to Germany as well. The foremost important thing is cooperation between the German government and Bundesbank, so as to come up with ‘one-voice’. If the German government wants to hold its position to help ECB, it needs to persuade Bundesbank by providing reasonable benefits.


2 thoughts on “ECB’s purchase of government bonds

  1. domestic policies vs. foreign affairs with EU….. How hard it will be for ECB to decide! Hopefully, policies are to be well-balanced-out. I guess every matter involved something ‘inter-national’ leaves this kind of problem, although the extent varies depending on how interdepedent each country is with the others.

    • yes indeed. i totally agree with your comment on the fact that not all the countries are independent on making and pushing ahead their finance-related policies. hope everything gets solved out well!

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