“You’ll have the ECB putting pressure to increase the EFSF and the politicians resisting,” Cailloux said.
The ECB’s foray into unfamiliar territory is like that of the U.S. Federal Reserve, which also has made exceptional investments in the bond market since the onset of the financial crisis four years ago and taken other aggressive steps to bolster the financial system and boost economic growth.
But the Frankfurt-based ECB is a different creature. It follows in the tradition of Germany’s central bank, the Bundesbank, an institution that made its paramount concern controlling inflation and ensuring the stability of the German currency. That mandate was transferred to the ECB as part of the design of the euro-zone monetary union.
Straying from that path has previously stoked political opposition. Similar objections are certain to arise when parliaments in Germany, Finland, the Netherlands and other fiscally conservative countries vote in the coming weeks on the new set of rescue measures.
In Germany, some of Chancellor Angela Merkel’s coalition partners have said they will oppose the measures, possibly forcing her into a new alliance with the Social Democrat or Green parties.
“The essential thing is the continued breach of law by the ECB and the heads of state and government who are throwing all rules overboard,” said Frank Schaefller, a member of parliament from the pro-business Free Democratic Party, part of Merkel’s coalition.
Other critics argue that the bond purchases are an economic mistake.
“The bond buying may help stabilize the situation in the short run. It won’t stabilize it in the long run,” said Joerg Kramer, chief economist at Germany’s Commerzbank. “The ECB has taken the pressure off the politicians.”
The ECB’s initial move to begin buying bonds, which was made last year under pressure from European political leaders as a way to help Greece, contributed to the decision by the former head of Germany’s central bank, Axel Weber, to bow out as a leading candidate to head the ECB. Weber’s successor at the Bundesbank, Jens Weidmann, has also been critical of Europe’s approach to the crisis.
Trichet, the current ECB chief, is also eager to get the central bank back on familiar ground, looking to political leaders to muster an effective response to the debt crisis. European governments should come up with a program “fully and rapidly,” Trichet said at a recent news conference. “It would eliminate the reason why we, from time to time, intervene on the bond market.”