ECB to overrule German objections to buying bonds

THE EUROPEAN Central Bank is poised to sweep aside the objections of Germany’s Bundesbank to a new bond-buying campaign as it sets out on a contentious new effort to assert control over the debt crisis.

The anticipated initiative comes as Minister for Finance Michael Noonan steps up his push for a deal to ease Ireland’s banking debt. According to an informed source, Mr Noonan has arranged meetings next week with his French, German and Italian counterparts in Paris, Berlin and Rome.

Today’s regular meeting of the ECB governing council in Frankfurt comes against the backdrop of mounting international pressure on the bank to intervene in bond markets to put a lid on Spanish and Italian borrowing costs.

Although ECB chief Mario Draghi is likely to face down opposition to the plan from Bundesbank governor Jens Weidmann and his allies, European officials believe the bank will provide only a minimum of detail about the policy in order to preserve its operational flexibility.

A further consideration, according to a European source, is that Mr Draghi may be wary of revealing too much detail ahead of a ruling next week from Germany’s constitutional court on the legality of the ESM bailout fund.

The ECB has already made it clear that any bond purchases would depend on the country concerned making an application for rescue aid from the ESM or its temporary predecessor, the EFSF, and agreeing to stringent fiscal policy conditions.

Well-placed sources say it is unlikely that the bank would set a public target for its expenditure on bonds or declare the bond yields, which would trigger an intervention in the open market.

While Mr Draghi has privately signalled the bank’s willingness to buy up three-year debt after a long hiatus in its bond-buying, attention centres today on the scope and scale of the new initiative.

The bank was not commenting publicly on its intentions before the meeting and there were conflicting reports yesterday as to whether it might declare it is ready to buy unlimited quantities of debt.

Further speculation centres on the likelihood of the bank waiving its seniority status on the sovereign bonds to avoid antagonising private investors.

Finance ministers and ECB governors will take stock of the new plan when they meet in Cyprus tomorrow week for informal talks.

No breakthrough is expected at this gathering on Ireland’s campaign for debt relief, although official-level contacts continued throughout the summer.

On his way to Nicosia, Mr Noonan will stop off in Paris next Wednesday for bilateral talks with French minister Pierre Moscovici.

He will meet German minister Wolfgang Schäuble the following day in Berlin and will go to Rome afterwards for talks with Italian minister Vittorio Grilli.

Economics commissioner Olli Rehn has said the EU Commission will table a debt-relief proposal to ministers this month in anticipation of a deal in October. It remains unclear as to whether the ministers will seek to settle the matter at their next scheduled meeting on October 8th or wait until later.