Central Banks

Monday, January 16, 2012 - 12:41

BBK Thiele: Current ECB Government Bond Buys Violate Treaty

FRANKFURT (MNI) - The European Central Bank's government bond buys are a violation of the Maastricht Treaty, Bundesbank board member Carl-Ludwig Thiele said Monday.

Thiele's comments depart form the official Bundesbank line. While the German central bank has warned that larger purchases may be illegal, it has said that current purchases do not violate the prohibition of monetary financing.

Thiele recalled that the decision to buy Greek government bonds had found no support from German ECB Governing Council members. "Germany was over-ruled on the Council," Thiele said.

"These buys were a violation against the prohibition of monetary financing, that is the basic principle that a central bank should not give credit to a state," Thiele said in a speech text provided by the Bundesbank.

Thiele also appeared to argue that the ECB does not actually buy government bonds of Spain and Italy to ensure the monetary transmission mechanism, as the bank always asserts, but simply to lower the borrowing costs for Madrid and Rome.

The decision to buy Italian and Spanish bonds "in my view, was taken because the majority of the ECB [Council] thought interest rates of these countries too high," Thiele said.

Thiele also said that the idea that the current crisis could be overcome by throwing on the printing press should finally be discarded. "This would only endanger the most important basis for a stable currency: the independence of a price stability orientated central bank," he said.

--Frankfurt bureau tel.: +49-69-720142. Email: jtreeck@marketnews.com

[TOPICS: M$X$$$,M$G$$$,M$$EC$,,M$$CR$]

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