'We're More Important': German Bundesbank Chief Warns Draghi Over ECB Bond Buying

By Oliver Tree | August 01 2012 8:32 AM

Bundesbank head Jens Weidmann has warned that Germany's central bank is "more important" than other European institutions, as tensions continue to rise between Berlin and Brussels over how to save the euro.

REUTERS

Bundesbank President Jens Weidmann attends the European Banking Congress 2011 in Frankfurt November 18, 2011.

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The warning comes after European Central Bank President Mario Draghi said last week he would do "whatever it takes" to save the common currency, prompting speculation the ECB was poised to buy bonds from debt-ridden nations in a bid to lower borrowing costs and prop up their economies.

The move, according to Weidmann, would violate the ECB's charter which prohibitis it from funding government debt.

"I certainly would not say that we are "just" one of 17 central banks," Weidmann said in an interview on the Bundesbank's own website.

"We are the largest and most important central bank in the Eurosystem and we have a greater say than many other central banks in the Eurosystem."

"This means that we have a different role... we are the central bank that is most active in the public debate on the future of monetary union."

" The [ECB] must be aware that its independence obliges it to respect its own mandate and not to exceed it."

The battle between Berlin and Brussels has intensified in recent weeks, with the fiscally conservative Bundesbank fundamentally opposed to the bond buying program.

Meanwhile, Draghi's comments have raised market hopes, with fears now that failure to deliver would be a major disappointment.

The ECB has engaged in bond buying before. In May 2010, the ECB activated its Securities Markets Program as Greece first teetered on the brink of collapse.

In August 2011 the ECB restarted the SMP program as the debt crisis spread to larger nations such as Spain and Italy.

Despite the precedent, this time round analysts remain unsure as to how the ECB will act.

"We are skeptical that such intervention will come as soon as this week, so there is quite a big risk of disappointment for the markets," Slavena Nazarova, an economist at Credit Agricole, told the AP.

"In the short to medium run, Mr. Draghi can afford to ignore" Mr. Weidmann, Jörg Krämer, chief economist at Commerzbank in Frankfurt, told the Wall Street Journal.

"In the long run, the central bank depends on support by the German public, and its views are formed by the skepticism of the Bundesbank."