Eurocrash: another spat as crisis slides to disaster
Saturday 1 September 2012
There was a considerable volume of coverage on the Weidmann-Draghi spat yesterday, with indications that it was beginning to reflect adversely on Merkel – Handelsblatt was running a storyheadlined: "Criticism of Merkel's zigzagging".
This newspaper is also of the view that Weidmann is fighting a losing battle although, apart from the news that the Bundesbank president was thinking of resigning over ECB bond purchases, there seems very little new material to fan the flames of the controversy.Draghi himself is getting some good press and some bad, the latter from Die Welt asserting that the man is "playing with fire", and repeating the mistakes of his past, when he was head of the Banca d'Italia.
But if it is spats you are after, there is a serious conflict developing between the German government and the EU commission over plans for banking supervision.
The commission wants the ECB to control all the banks in the eurozone - including German savings banks – some 6,000 in all. This cropped up most recently on 18 August but has re-emerged in an interview with commissioner Michael Barnier.
But, with the legislative package to be formally presented on 11 September, Schäuble is up in armsat the power grab, rejecting any idea that the ECB should supervise anything other than the largest of banks.
The banks themselves oppose the proposal and they are supported by professor Christoph Kaserer, who warns that small banks will be unnecessarily overloaded with bureaucracy.
To absolutely no one's surprise, however, the commission is unmoved by the opposition, grandly declaring – with unconscious irony - that unified supervision is "necessary for the credibility of the system". It argues that the current supervisory system is not working effectively, and has plans to launch an agency to handle ailing banks.
This might be too late for Spain though. Spaniards are deserting their banks in their droves, with €219.8 billion having been withdrawn in the first six months of the year. For the whole of 2011, only €68.3 billion left Spain.
Capital flight on this scale is unprecedented in recent times, and may yet force the hands of the politicians. They cannot allow a haemorrhage on this scale to continue, especially as Spanish bond yields a back on their way up to seven percent again.
While the "colleagues" are plotting their power grab, crisis is inexorably sliding towards disaster.
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Richard North 01/09/2012
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