Behind Draghi's No-Show in Jackson Hole: Things Are Not So Smooth in the ECB
August 31, 2012 • 9:40AM

Two internal ECB sources told Financial Times journalists that there is no unity in the ECB on Draghi's QE proposal. The internal report produced by the ECB leaves different options open, reflecting doubts on various aspects of the program, "leaving the executive board with the tricky task of drawing up a draft plan for the program that takes into account those differences of opinion."

The main area of disagreement is the fear that the ECB might be forced to continue purchases even if countries miss targets set by the EU. "If purchases were stopped at the same time as a country missed targets, then yields could soar. This could force the ECB into a position where it has to act to avoid a financial meltdown."

Draghi wrote an article in Die Zeit Wednesday, to respond to his "German criticizers." He defended the ECB's "extraordinary measures," saying they are needed to grant stability, and therefore the ECB will take such measures whenever it is necessary. He then claimed that nobody wants to build a European Federal State (Ulbricht: "nobody has the intention of building a wall"). But, "it is necessary to have an effective surveillance of state budgets, minimal standards for competitiveness and a common financial markets architecture."

In a commentary Wednesday, Handelsblatt columnist Norbert Haering recalls that Mario Draghi was put into the ECB by Sarkozy and that French banks would be the most favored by the ECB QE policy. Not only do countries such as Spain have a clear interest in having the ECB purchasing their bonds, Haering writes, but also "France, whose banks are heavily involved in Mediterranean countries and have a lot at stake," backs those countries. "It was former French President Nicolas Sarkozy who was decisive in putting Italy's Draghi into the ECB presidency. And it was [Sarkozy's] successor Hollande, who along with Italian Prime Minister Mario Monti jumped to the side of Draghi and almost verbatim said that 'everything necessary' must be done to save the euro." German Chancellor Angela Merkel then formally backed the critics of Bundesbank President Jens Weidmann, but gave the go ahead to Draghi.

"In the relationship between the Bundesbank and the other European countries, such conflicts are occurring relatively often. In politics, it is covered by the veil of the French-German friendship. So far, Chancellor Angela Merkel has avoided taking a clear position."