BERLIN — Growing more confident that the acute phase of the euro zone debt crisis may be passing, Germany is beginning to put pressure on the European Central Bank to start mopping up the extra cash that it has flooded into European markets to stem the spread of financial contagion.
A senior ally of Chancellor Angela Merkel called Saturday on the ECB to quickly get back to its anti-inflation mission and safeguard the stability of the euro currency.
“I hope that the ECB acknowledges its limits and quickly rakes in the money later,” said Volker Kauder, the head of parliamentary group of Merkel’s conservative alliance of Christian Democrats and its sister party, the Bavarian Christian Social Union, in an interview published in the business weekly Wirtschaftswoche on Saturday.
Kauder’s warning follows similar comments made by Merkel at the most recent summit of European leaders on March 2. Responding to warnings by Brazil about a “tsunami of cheap money” flooding global markets, Merkel said during a news conference that she was certain that the ECB had now ended its program of issuing cheap 3-year loans to banks. Merkel also reassured critics that ECB wouldn’t repeat such measures again.
Through its 3-year-loan program, the ECB has pumped about EUR1 trillion into Europe’s banks. As a result, the ECB’s balance sheet now exceeds EUR3 trillion, about one-third of euro zone gross domestic product. That, say analysts, is a bigger share of the euro zone economy than the Federal Reserve’s balance sheet, which makes up 19% of U.S. GDP, or the Bank of England, whose balance sheet is equal to about 21% of U.K. GDP.
With the apparently successful conclusion of the Greek debt restructuring this week and positive reaction of financial markets to the second Greek bailout, Germany appears to be giving the danger of inflation following the massive ECB liquidity measures a higher priority than during the acute phase of danger during the euro zone debt crisis. Merkel has said that European governments will have to continue fighting the crisis for years to come, but German officials are increasingly confident that Europe may be gaining the upper hand over the crisis.
The next step in the battle against the crisis will be to establish the European Stability Mechanism, or ESM, the euro zone’s permanent bailout fund. Germany sees setting up the fund as a robust firewall against contagion as the signal that the ECB needs to go back to business as usual and concentrate on its inflation-busting core mission.
“Then the ECB will be able to and must concentrate again on its task of being the stability anchor of monetary policy,” Kauder told Wirtschaftswoche.
-By William Boston, Dow Jones Newswires; +49 30 2888 4128, William.Boston@dowjones.com
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