MacroScope

ECB QE move one in the eye for Weber

May 8, 2009

The European Central Bank’s decision to buy up covered bonds is one in the eye for the Bundesbank’s Axel Weber.

Alongside fellow German Juergen Stark, he had led a campaign urging his colleagues to shun the current craze among central banks of effectively printing money by buying up debt or loans from their holders, banks. Unfortunately for him, they didn’t agree.

But while he may have lost the war, he certainly scored a substantial victory for his country during the battle. Covered bonds – bonds backed by mortgage loans or public debt – originated in Germany and the country’s banks still dominate the market, meaning they are likely to benefit the most.

“He was not one of the winners yesterday, but it’s a nice loss, let’s put it that way,” said UniCredit euro zone economist Aurelio Maccario. “I think in exchange to have the Bundesbank on board, they have chosen to buy covered bonds which are financial assets from the German banking system.”

ECB watchers speculate that Weber is one of the frontrunners to replace Jean-Claude Trichet in the ECB top job when his term expires in 2011.

The defeat over asset purchases is unlikely to have helped his election chances, but in what may turn out to be strange twist of fate, the ECB has revealed Trichet’s last meeting in charge, on October 6, 2011, will be hosted by the Bundesbank in Germany’s capital Berlin.

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