German Politician Warns ECB About Sovereign Bonds Purchase

January 2, 2015 Share Print 0

A senior member of Angela Merkel’s party warned the European Central Bank not to pour money into Greece and other struggling euro zone states through bond purchases, saying this would reduce pressure on them to enact much-needed reforms.

Michael Fuchs, deputy parliamentary floor leader of the German chancellor’s Christian Democrats (CDU), told Deutschlandfunk radio on Friday: “We shouldn’t pump extra money into these states, but rather make sure they continue along the reform path.

“I’d be grateful if (ECB President Mario) Mr Draghi would make statements along these lines.”

In an interview with German financial daily Handelsblatt published on Friday, Draghi urged politicians to implement necessary reforms, reduce tax burdens and cut red tape to support a fragile euro zone recovery.

He also said the risk of the central bank not fulfilling its price stability mandate was higher now than half a year ago, and reiterated its readiness to act soon if needed, with government bond purchases among the tools it could use.

With the euro zone flirting with deflation, financial markets interpreted Draghi’s comments on Friday as strongly suggesting the ECB would soon embark on outright money-printing, and the euro sank to a 4-1/2 year low against the dollar.

via Reuters

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Alfonso Esparza

Senior Currency Analyst at Market Pulse

Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.