by Balazs Koranyi and Francesco Canepa
FRANKFURT, July 4 (Reuters) – Bundesbank President Joachim Nagel opposed the European Central Bank’s plan to provide further support to the European Union’s most indebted countries at a meeting of emergency last month, sources familiar with the talks told Reuters.
The ECB, which is due to raise its interest rates at its July 21 meeting, has pledged to draw up a new securities purchase program that is supposed to limit the widening of yield differentials between member countries.
Joachim Nagel opposed the move, saying the main mission is controlling high inflation, three sources said.
Spokespersons for the ECB and the Bundesbank declined to comment on the matter.
The June 15 videoconference was convened with just hours’ notice, leaving very little time for governors to study preparatory documents or even attend the meeting, the sources said.
ECB members who have spoken since, including hawks Pierre Wunsch of the National Bank of Belgium and Klaas Knot of the Dutch central bank, backed President Christine Lagarde’s pledge to prevent further fragmentation. euro area finance.
This is the first clear disagreement between Christine Lagarde and Joachim Nagel since the latter took office in January as head of the Bundesbank, which for years has been the biggest critic of the ECB’s accommodative policy. .
Christine Lagarde and Joachim Nagel have since tried to iron out the differences, the former granting the heads of the national central banks a greater right of scrutiny over monetary policy meetings and the latter refraining from publicly criticizing the decisions taken.
However, the President of the Bundesbank is under pressure in Germany due to the level of inflation, at its highest since the 1970s, and the belief that the ECB’s policy is more aimed at helping indebted countries like the Italy and Greece rather than containing prices.
Other sources had told Reuters last week that the ECB will buy bonds issued by Italy, Spain, Portugal and Greece using the proceeds from the German, French and Dutch debt maturities it holds in portfolio, to limit the widening of yield differentials between States.
With this scheme, it is likely that the share of German debt in the ECB’s balance sheet falls below the required quota while it is supposed to respect a distribution between countries.
The Bundesbank would also suffer losses if it were forced to sell German bonds to offset debt purchases from other countries. (Report Balazs Koranyi and Francesco Canepa, French version Laetitia Volga, edited by Kate)