Splits at the heart of the European Central Bank over last week’s rate cut have revived fears in Frankfurt of a German popular backlash against the bank’s policy making, even as the ECB faces decisions critical to the eurozone’s future.
People involved in policy debates said divisions between northern and southern representatives on the ECB board have been deepening since pressures on the eurozone have eased, with members freed up to revert to national interests.
Last week, two German members of the ECB’s 23-strong governing council led a six-man revolt against Thursday’s move to cut the benchmark lending rate by 25 basis points. The cut was followed by public broadsides from Germany’s influential conservative economist Hans-Werner Sinn and some mainstream financial media.
Among those who voted with the two Germans on Thursday were the heads of the Dutch and Austrian central banks. One senior official said at least a quarter of the governing council is splitting from Mario Draghi, ECB president, on many major policy initiatives.
Officials said the bank’s leadership was even more concerned that growing anti-ECB sentiment in Germany could hamper Mr Draghi’s ability to move aggressively against signs of deflation and other issues sensitive to Berlin. These include a future EU banking union and the provision of new cheap long-term loans for struggling eurozone banks.
“This indeed can be a problem for the coming difficult decisions,” said one person involved in the discussions. “It shows a big problem: that the ECB is heavily losing trust and confidence in the largest country of the euro area.”
Another person who has spoken to board members said the rising anti-Italian bent of some ECB criticism in Germany was of particular concern. Mr Draghi is former head of the Bank of Italy and the country is projected to end the year with the deepest recession of any of the five largest eurozone economies.
In an interview at the weekend with German’s Bild, Mr Sinn accused Mr Draghi of cutting the rate to help borrowers in the south get low-priced loans, an apparent reference to Italy.
Mr Draghi has won plaudits for resolving differences between Germany and the ECB over the bank’s eurozone crisis response. Two years ago, Jürgen Stark, then German member of the ECB executive board, and Axel Weber, head of the German central bank, resigned over the bank’spurchase of struggling eurozone countries’ sovereign bonds. Although Jens Weidmann, Mr Weber’s Bundesbank successor, has publicly opposed Mr Draghi’s bond-buying plan, Mr Stark’s successor, Jörg Asmussen, backs the plan. Despite voting with Mr Weidmann against the rate cut, he is seen as a key bridge between Mr Draghi and Berlin.