Central bank still split over response to eurozone crisis


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The Independent Online

The president of the European Central Bank, Mario Draghi, is set to disappoint hopes of a “shock and awe” solution for the eurozone crisis when he unveils plans this week to help the region's strugglers.

Mr Draghi – who ditched a visit to the Jackson Hole symposium in Wyoming last week – faces a frantic race to win the agreement of the ECB's governing council for bond-buying plans amid German opposition before Thursday's critical meeting.

Bundesbank president and ECB committee member Jens Weidmann has reportedly been on the brink of resignation over the move, on the grounds that it breaches the central bank's mandate against financing government debts. His predecessor Axel Weber and German ECB member Juergen Stark both quit last year over last summer's emergency bond-buying programme.

Richard Barwell, an economist at the Royal Bank of Scotland, said: “We don't think it is too great a step into grassy knoll territory to conclude that a Draghi no-show at Jackson Hole likely reflects the fact that discussions within the senior echelons of the ECB are still going on over the design of the new bond buying programme, and a final sign-off is still some way off.”

The most dramatic silver bullet mooted in the run-up to Thursday's crucial meeting – a so-called “yield cap” where the borrowing costs of weaker nations such as Spain and Italy are pegged to ultra-safe Germany through major central bank bond-buying – is unlikely.

Analysts instead expect Mr Draghi to stick to plans for the ECB to buy up short-term debt as he signalled a month ago – but only in response to specific requests by member nations, and subject to strict conditions.