EU: Germany backs Draghi bond plan against Bundesbank

The Telegraph ^ | 8/20/2012 | Ambrose Evans-Pritchard

[bruinbirdman]

Germany’s director at the European Central Bank has thrown his weight behind mass purchases of Spanish and Italian debt to prevent the disintegration of the euro, marking a crucial turning point in the eurozone debt crisis.

“A currency can only be stable if its future existence is not in doubt,” said Jörg Asmussen, the powerful German member of the ECB’s executive board.

He signalled full backing for the bond rescue plan of ECB chief Mario Draghi, brushing aside warnings from the German Bundesbank that large-scale purchases would amount to debt monetisation and a back-door fiscal rescue of insolvent states in breach of EU treaty law.

Mr Asmussen told the Frankfurter Rundschau that the surge in Club Med bond yields over recent months “reflects fears about the reversibility of the euro, and thus a currency exchange risk” rather than bad economic policies in struggling states.

The choice of wording is crucial. If it can be shown that the ECB is acting to avert EMU break-up – known as “convertibility risk” – bond purchases would no longer be deemed a bail-out for Italy and Spain.

Mr Asmussen confirmed that purchases may be “unlimited” in scale, a far cry from the half-hearted intervention of the past two years, which failed to stem capital flight.

The Daily Telegraph can confirm reports in Der Spiegel that ECB technicians are examining plans to cap Spanish and Italian bond yields, among other options. This may prove to be the “game changer” that critics around the world have been demanding for two years.

The ECB’s director-general of market operations, Ulrich Bindseil, is spearheading the plans in talks with experts from the ECB’s family of national central banks. Market, monetary policy and risk management committees are working to put together a draft.

“They don’t take

[Billthedrill]

Daggone it. I moved my entire portfolio into Greek bonds last week. I wonder if I should diversify into Italian and Spanish ones too?

BTT.

[BfloGuy]

A currency can only be stable if its future existence is not in doubt

A currency can be stable if it isn't printing its way into oblivion. This, too, will end badly.

[Varsity Flight]

The plan is to Qe until the Fall Guy, like U.S. Extortion-Care 2014, is forced. And any so called “insurance” companies, fraud front for investment holders, holding the bond-fund-bank note bag, will leverage from the U.S. Extortion-Care. Watch for it.