Southern discomfort fuels German unease

The head of Germany’s Bundesbank, Jens Weidmann, launched a powerful attack on Mario Draghi, President of the European Central Bank, in February 2012, in a sign of mounting concern in Europe’s biggest economy at measures being taken to try to contain the eurozone financial crisis.

Jens Weidmann’s warning of increasing risk stemming from some ECB policies highlighted fears of potential costs for Germany from its role as the eurozone’s biggest creditor nation and may spark fresh doubts about the eurozone’s ability to deal with the long-running banking and sovereign debt crisis.

Article writes that the Bundesbank President Jens Weidmann’s concerns about risks run by the European Central Bank are in part a response to debate in Germany about whether the balance sheet of the Bundesbank, which he heads, is filling up with potentially troubling exposure to southern European counterparts.

The debate centres on 'Target2', a payment mechanism for eurozone central banks. At last count the Bundesbank’s Target2 balance amounted to almost €500bn – an amount that has grown from almost nothing before the financial crisis.

The Bundesbank agrees that central banks are meant to provide banks with liquidity. But it worries that the ECB is straying beyond being a lender of last resort into a long-term prop for failing banks in the eurozone – without appropriate security for the increasing risks it is taking.

ESO: Background information: Buttress for Europe’s fragilities / Bundesbank at odds with ECB over loans http://www.europeansources.info/record/buttress-for-europes-fragilities-bundesbank-at-odds-with-ecb-over-loans/

ECB: Payments and markets: Target2 http://www.ecb.int/paym/t2/html/index.en.html

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