Deutsche Bank’s co-chief executive Anshu Jain is one of Germany's most prominent bankers, the co-head of the largest financial institution in Europe's largest economy. So it was perhaps no surprise on Wednesday when Germany, which vehemently opposes the European Central Bank's plan to purchase sovereign debt, turned to Mr. Jain in a last-ditch effort to derail the purchases.
At a panel discussion at the World Economic Forum on Wednesday in Davos, Mr. Jain warned that ECB President Mario Draghi’s massive government bond-buying program would lead to “a real destruction” of revenue in its lending business.
The last-minute pressure from Mr. Jain may have played a role in the ECB's decision to shield individual euro zone countries such as Germany from shouldering the entire risk of a euro zone default or departure by one of its 19 member countries.
In a compromise announced with his €1.14 trillion initiative, Mr. Draghi said ECB council members had agreed to share the risk of only 20 percent of the government and private-sector debt that would be bought in the program. The rest, 80 percent, will be carried by the individual nations, which will buy only public- or private-sector debt from domestic entities.
That means Germany, which had feared having to assume responsibility for a default or departure by other countries, will not be forced to repay the debts of its euro zone partners. German bankers and overseers had led a concerted lobbying campaign in the run-up to today's announcement.
Mr. Jain, the Deutsche Bank co-chief executive, was the most prominent private sector voice to express concerns over the bond-buying program, which he predicted would reshape banking priorities across the continent.
“It’s going to have a profound impact on all aspects of our business model,” Mr. Jain said on Wednesday at a Davos forum. “We really have to adapt to this environment, and frankly it’s here to stay until European growth turns around, which could be a while.”
Hardly anyone doubts that Mr. Draghi will later today announce that the ECB is launching a quantitative easing program, a controversial and historic move for the 19-nation euro zone that is designed to raise prices and pull the currency bloc out of its economic slump. With the ECB having already pushed its short-term interest rates to zero, the bond-buying plan aims to further lower the interest rates that banks and investors charge governments and businesses for loans.
But while Mr. Draghi’s plan has been met with overwhelming support in much of Europe, the opposition in Germany, Europe’s largest economy, has grown stronger.
Just because you accept the independence of the ECB doesn’t mean you have to take a vow of silence. Christian Lindner, Free Democratic Party
The ECB’s governing council has been meeting in Frankfurt since Wednesday, and concrete proposals have been laid out by Mr. Draghi and his executive board. The plan involves buying €50 billion of government bonds every month, starting in March, until the end of 2016, the financial news agency Bloomberg has reported. That would amount to a total of €1.1 trillion – a figure that is far beyond the expectations of most analysts and already sent the euro tumbling to an 11-year low against the dollar on Thursday.
Central banking sources say that what still remains open is whether the risks from buying government bonds will be spread across the euro zone’s 19 national central banks, or whether each central bank will be liable for its own country’s debt.
The latter option would be a first in the history of the ECB, which has until now always spread the risks of its monetary policy operations across the euro zone, but it has been floated to ease Germany’s concerns that it could be on the hook for the debt of southern European countries. Mr. Draghi remains wary of this approach, and even Germany’s finance minister, Wolfgang Schäuble, is reportedly unsure about whether “renationalizing” debt in the euro zone is really a good idea.
Whatever happens, Jens Weidmann, the president of Germany’s central bank, the Bundesbank, and a member of the ECB’s 25-person governing council, is widely expected to vote against the program, arguing it is unnecessary and reduces the incentives for governments to step up and do what is needed to put the euro zone back on a sustainable growth path.
Mr. Weidmann could be joined in opposition by his German compatriot Sabine Lautenschläger, a member of the ECB’s executive board in Frankfurt, and possibly by Dutch central banker Klaas Knot, who has suggested he will only back the plan if the ECB keeps the risks localized to each country.
A broad coalition of economists, politicians, bankers and central bankers has formed here in Germany against the ECB’s plans.
Mr. Jain was only the latest opinion leader in Germany to join the fray, warning that, while the policy may be justified on economic grounds, there will be major side effects for Europe’s banks. He was backed at the Davos conference by Axel Weber, the former head of the Bundesbank who is now chairman of the Swiss bank UBS. The ECB could not solve the euro zone’s problems, Mr. Weber said flatly.
Markus Söder, the finance minister for the state of Bavaria, sharply criticized the ECB in an interview with Handelsblatt. “The consequences are dangerous,” he said, warning it sent a wrong signal from countries like Italy and France that need to do a better job of reforming their economies.
“They get to sit back, thanks to the ECB,” Mr. Söder said. The euro, which has lost around 20 percent of its value as the ECB has begun moving towards quantitative easing, is in danger of becoming a “weak currency,” he warned.
Mr. Söder said what many in Germany’s federal government are thinking, but have been reluctant to say out loud.
German Chancellor Angela Merkel, who has been directly lobbied by Mr. Draghi, has been among the most cautious of Germany’s politicians, instead stressing the ECB’s independence from governments. On Wednesday, she warned that governments should “act against” the desire to ease the pace of much-needed reforms in Europe.
Her reluctance to push back more strongly has been criticized by some German politicians.
“Just because you accept the independence of the ECB doesn’t mean you have to take a vow of silence,” Christian Lindner, the leader of the conservative Free Democrats, of FDP, told Handelsblatt.
Mr. Lindner acknowledged the ECB is facing a dilemma. The central bank has been driven to act because euro zone governments “have neglected reforms,” he said.
Indeed, while the euro zone may no longer be in recession, the situation still looks pretty dire. The ECB’s chief goal with its policy is to avert the danger of deflation – a broad drop in consumer prices that could prompt European households to delay purchases. Annual inflation in the euro zone turned negative in December for the first time in five years, with prices falling 0.2 percent.
Part of the problem is that this is not the story in Germany, which has seen its economy grow more strongly than nearly all of its euro zone neighbors.
“There is no talk of deflation in Germany, because we are seeing increased consumption,” said Mr. Schäuble, Germany’s finance minister.
Jan Hildebrand and Donata Riedel are Handelsbatt reporters in Berlin, Michael Maisch is deputy finance editor in Frankfurt and Jens Münchrath leads monetary policy coverage out of Düsseldorf. Christopher Cermak, an editor with the Handelsblatt Global Edition in Berlin, also contributed to this story. To contact the authors: [email protected], [email protected], [email protected] and [email protected]