Germany’s top central banker cooled speculation that the European Central Bank (ECB) will extend its role as European leaders pressed their case that a new fiscal accord will deliver the region from its two-year-old debt crisis.
Bundesbank President Jens Weidmann told the Frankfurter Allgemeine Sonntagszeitung newspaper that while the new accord represents “progress,” the onus is on governments rather than the Frankfurt-based ECB to resolve the crisis with financial backing.
German Finance Minister Wolfgang Schaeuble said that euro-area policymakers will now focus on implementing Friday’s accord to strengthen budget rules as quickly as possible.
The Franco-German-led agreement, which provides tighter budget rules and an additional 200 billion euros (US$266 billion) to the euro war chest, is part of an effort to reassure investors that European leaders can master the crisis. ECB President Mario Draghi lauded the accord, stoking hopes among investors that the central bank might step up bond purchases.
“The mandate for redistributing taxpayer money among member states clearly does not lie in monetary policy,” Weidmann said in the newspaper interview published on Sunday. “Financing of sovereign debt through central banks is and remains forbidden by treaty.”
European stocks and the euro dropped yesterday, with the single currency down 0.55 percent at US$1.3313 as of 9:25am in Berlin. German 10-year bonds rose and two-year yields approached a euro-era record low, while Italy’s 10-year yield was up 20 basis points to 6.53 percent and similar maturity Spanish debt rose 14 basis points to 5.86 percent.
US 30-year yields fell two basis points to 3.09 percent at 8:14am London time, according to Bloomberg Bond Trader prices. The 3.125 percent security due in November 2041 rose 10/32, or US$3.13 per US$1,000 face amount, to 100 20/32. The rate added eight basis points, or 0.08 percentage points, last week.
Ten-year yields were little changed at 2.05 percent, versus the record low of 1.67 percent set on Sept. 23.
“Until you see a concrete resolution in Europe, this will remain a low-yield environment,” said Chungkeun Oh, a fixed-income trader in Seoul at Industrial Bank of Korea, South Korea’s largest lender to small and medium-sized companies.
The accord is “insufficient,” Mohamed El-Erian, Pacific Investment Management Co’s co-chief investment officer along with Bill Gross, said in an interview with French newspaper Les Echos.
After the EU summit, German Chancellor Angela Merkel said the accord set the region on a path to a “lastingly stable euro,” and “the breakthrough to a stable union has been achieved.”
The single currency will be “more robust” after the acute stage of the crisis subsides, Finnish Prime Minister Jyrki Katainen told YLE Radio Suomi on Sunday.
The accord opens the way for the ECB to intensify its role in the crisis, Irish Deputy Prime Minister Eamon Gilmore said in an interview with Dublin-based broadcaster RTE on Sunday. The ECB has signaled “that it would strengthen its role and enhance its role following the conclusion of an agreement,” Gilmore said.
“The ECB will have to gear up its purchases should market tension increase; there is simply no other option available,” Thomas Costerg, an economist at Standard Chartered Bank in London, wrote in e-mailed response to a Bloomberg News query.