Principled pragmatism

19 May 2015 By Neil Unmack Follow @unmack1

Athens’ borrowing from the European Central Bank has Germany’s Jens Weidmann fretting over euro zone rules that prohibit monetary financing. The ECB’s guilt depends on the severity of its judge. In the real world, its pragmatic approach looks defensible and effective.

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Jens Weidmann, president of Germany’s Bundesbank, has criticised the European Central Bank’s provision of emergency liquidity to Greek banks. The liquidity may breach rules on monetary financing, Weidmann argued in an interview published by German newspaper Handelsblatt on May 15.

“Granting loans to banks which are cut off from the markets and which use these loans to finance their own government’s bonds is, in my view, out of order given the ban on the monetary financing of governments,” Weidmann said in the interview which was later re-published by the Bundesbank.

The ECB has sanctioned 80 billion euros of emergency liquidity assistance (ELA) to Greek banks. The banks have collateral to cover up to 95 billion euros of borrowing, Bloomberg reported on May 17. Greek ELA volumes have risen from 5.2 billion euros at the end of January to 65.6 billion euros at the end of February, 68.5 billion euros at the end of March and 74.4 billion euros at the end of April, according to the Bank of Greece.

The liquidity is provided by the Bank of Greece, but needs authorisation from the governing council of the European Central Bank every two weeks.

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