European Central Bank (ECB) President Mario Draghi launched a vigorous defense of
his new bond-purchase plan before German lawmakers, seeking to quiet fears over the
central bank's expanding role in battling the euro crisis. The meeting between Mr. Draghi
and members of Germany's parliament is a crucial step in both the European Central
Bank's and German Chancellor Angela Merkel's efforts to keep Germany firmly
behind Europe's efforts to prevent the 17-nation currency bloc from collapsing.
In September, the ECB unveiled a new bond-buying program after several months of
inaction in markets. Unlike a previous limited program that failed to stem the crisis, the
ECB can now undertake open-ended purchases. In another change, governments
needing help, such as Spain, must first request assistance from Europe's bailout funds
and agree to fiscal overhauls. Mr. Draghi said he wants the International Monetary
Fund involved in overseeing compliance as an additional safeguard. These safeguards
failed to impress Germany's influential central bank, the Bundesbank, which has
blasted the plan as being tantamount to financing governments by printing bank notes.
Although Germany's chancellor and finance minister have publicly backed Mr. Draghi,
the Bundesbank's views resonate with large swaths of the German public, as well
as lawmakers.
Mr. Draghi took a conciliatory tone, telling parliamentarians: I am here to listen to your
views on the ECB, on the euro-area economy and on the longer-term vision for Europe.
He repeatedly stressed three themes: that the bond program was necessary to smooth
fragmented financial markets; that it doesn't violate ECB rules against financing
governments; and that it won't divert the central bank's attention from its primary mission
to keep prices stable.
Mr. Draghi said. Mr. Draghi also sent a reassuring message to Spain and Italy, signaling
that they have taken credible steps to overhaul their economies, and that markets were
not prepared to wait for the positive effects." Some German officials, in contrast, see
market pressure as essential to prod Southern Europe to take more-dramatic steps.
Mr. Draghi is basically telling Germany that reforms they have been advocating did not
lower bond yields. Mr. Draghi's bond plan has calmed Spanish and Italian bond markets,
with yields down sharply since he first signaled that a new program was in the works
in late July. But reports Wednesday suggest this has provided no relief to the euro bloc's
struggling economy, which remains hampered by rising unemployment, weakening
confidence and a global slowdown that is draining exports.
The October purchasing managers' index, compiled by data firm Markit through a
survey of purchasing executives, fell to 45.8, a 40-month low, from 46.1 in
September Index readings below 50 signal contraction in activity. Recent PMI
data point to an annualized drop in gross domestic product of around 2% in the
third and fourth quarters, some analysts said. Financial markets may have cheered
the ECB's bond plan but business appears to have been less impressed.
The PMI estimate included country details only for Germany and France, which
each posted contractions in activity. A separate survey index from Germany's Ifo
Institute fell to its lowest level in three years.
Sheila McKinney
