On Aug. 28, German Finance Minister Wolfgang Schaeuble was a guest on Bloomberg TV and spoke out on the growing concerns by members of the European Union that the ECB should begin channeling money and liquidity to broke sovereign countries in light of the declining economic conditions occurring within the Eurozone.
Historically, the Eurozone and European Central Bank (ECB) charters disallows the bank from directly buying sovereign bonds or debt like the United States currently does through the Federal Reserve, and in prior collapses that have taken place in EU countries such as Greece, Spain, Portugal, and Greece, the ECB has focused primarily on capitalizing banks and purchasing corporate bonds as a means of infusing liquidity into these countries without working directly with political entities within the given nation.
Additionally in his interview with Bloomberg TV, Wolfgang Schaeuble stressed the need to end easy monetary policies which have delayed countries from implementing necessary measures to draw down debt, and cut their budgets since the 2008 credit and 2010 liquidity crises. And in particular, Schaeuble focused primarily on France and the fact that President Francois Hollands is now hinting at convening an EU conference that would allow for a changing of the bylaws under the European Central Bank (ECB), and thus allow the bank to begin lending directly to sovereign governments through the direct buying of sovereign bonds and debt.
French President Francois Hollande has proposed holding a euro-zone summit to discuss using the flexibility of EU treaties to slow the pace of deficit reduction. Mr. Schaeuble avoided saying whether Germany would approve a more flexible approach for any country in particular.
“Nobody has a lesson to give to anyone else because everyone knows the rules,” Mr. Schaeuble said.
Germany has been reluctant to give up on fiscal discipline without seeing results from French promises to make structural changes to the economy in areas like labor law and welfare benefits. Europe last year already granted France a two-year delay to 2015 to bring its deficit within the EU rule of 3% of economic output–a target France is now likely to miss.
Schaeuble also stated that the EBC has reached limit in helping euro area and that any monetary policy from the central bank can only buy time but not resolve the underlying problems. – Zerohedge
It is interesting to note that Germany remains the only EU nation that has weathered the Great Recession, and has been the primary supporter of bailouts through the ECB. But after six years of continuous lending and increases in debt by many of these counties despite the bailouts, the value of loans and bond purchases no longer achieve positive effects, and without a complete overhaul of these economies through austerity or re-engineering no amount of money will facilitate a recovery and only delay the inevitable.
Germany is caught in the crosshairs of an even greater battle for monetary supremacy as the ongoing currency war between the United States and Russia threatens to affect and perhaps collapse their own economy from sanctions and export restrictions being imposed from both sides. And with Russian restrictions on food and other imports already causing EU nations like Finland, Greece, Poland, and Spain to fall deeper into economic turmoil, the leader of the European Union is now stating that enough is enough, and the era of cheap money from the ECB is over.