The ECB Bends To Politicians: Ridiculed and At Risk; Europe's Bad Bank

Der Spiegel has a harsh article on the European Central Bank today: "Critics have come to ridicule the ECB as "Europe's biggest bad bank," and the reputation of ECB President Jean-Claude Trichet has also suffered. Indeed, even some of Trichet's close companions believe he has become all too eager to bend to political will".

Former ECB chief economist Otmar Issing criticized the bank for considering an amendment to its "no bail-out" clause. Doing so, he wrote, would be "a move on a slippery road to a regime of fiscal indiscipline drowning hitherto solid countries in the morass of over-indebtedness."

The ECB has launched the greatest purchasing of government debt in its history, shaking the already fragile foundations of Europe's monetary union. "But it's not just the stability of the euro that's at stake; it's also the credibility of the very institution charged with preserving its value".

"When the ECB was founded 13 years ago, it was meant to be a European version of Germany's Bundesbank and the heir to its steadfast principles: The sole duty of central bankers is to maintain price stability while remaining politically independent. And their supreme task is to deny the government access to the money printers. Indeed, things at Europe's central bank were supposed to go just like they did under Karl Otto Pöhl and Helmut Schlesinger, the legendary pair of Bundesbank presidents who served between 1980 and 1993 and primarily solidified their reputations by being able to say "no" at the crucial moment".

That is not the case.

The Euro was supposed to unite the Continent but is now threatening to split it apart with the worst fissures running straight through the ECB itself.


"Trichet and his colleagues from heavily indebted countries in southern Europe favor a massive effort to purchase sovereign state bonds. But the head of the Bundesbank and his colleagues from the EU's "net payer" countries, such as Luxembourg and the Netherlands, believe that would be a major mistake because they fear it would only trigger inflation". [Der Spiegel]