It was no surprise to hear a German popping up five minutes after the ECB announced the details of the ABS program yesterday, and German lawmakers weren’t far behind either.
They’ve warned that the ECB plan could put the European taxpayer at risk if banks pass on risky assets to the ECB. They added that the program may also have governments taking their foot off the structural reform peddle.
A senior lawmaker for Angela Merkel’s party told the WSJ that
“We don’t think this is a very good decision. I understand that the ECB wants to do something against the credit crunch in some southern European countries. But we know the operation of purchasing asset-backed securities from the time before the crisis.”
“There is a risk that banks get rid of bad loans for which the ECB will then be responsible and therefore make taxpayers liable. We are not very excited about this, I very much hope that Mr. Draghi is aware of the limits of his mandate.” said Norbert Barthle
Germany will then be overchuffed today to hear that Italy has said that it is considering offering state guarantees to riskier asset backed debt so that the ECB can buy them. Reuters cite a story in Italy’s Il Sole 24 Ore which says that Treasury, the Italian banking assoc, BOI and state lender Cassa Depositi e Prestiti had met over guaranteeing a tranches of some secured debt issuances.
We would hope that the folks at the ECB are savvy enough not to get caught out as a dumping ground for the crap assets on European banks books, but this is something the Germans are going to be very forceful on, so we should be ready for a slew of objections over the next couple of weeks. Considering banks have (supposedly) been cleaning their acts up (we’ll find out at the stress tests) going down the risk path, with a backstop of palming it off to the ECB, is not something we want to be hearing about again.