European Central Bank chief Mario Draghi is facing
mounting pressure as he attempts to drive forward a new controversial
plan to help resolve the long-running eurozone crisis.
In addition to reports that the head of Germany's powerful central
bank, the Bundesbank, threatened to resign over the moves being drawn
up by Draghi, data released Friday showed a sharp pickup in inflation
and a rise in unemployment to a record eurozone high.
This comes as part of the buildup to Thursday's meeting of the
ECB's 23-member governing council, which is expected to consider
Draghi's plans to reactivate its government bond-buying programme.
The move forms part of efforts to drive down the borrowing costs
for nations at the centre of the long-running debt crisis, such as
Italy and Spain.
The ECB meeting also came as European leaders press on with a
round of shuttle diplomacy ahead of a series of key decisions in the
battle to haul the eurozone back from the brink.
Underscoring the importance of the current deliberations at the
ECB, Draghi said he was cancelling his trip to the United States for
this weekend's key meeting of world central bankers at Jackson Hole,
Wyoming.
Under Draghi, who became ECB president in November, the bank has
taken to a series of bold decisions to help shore up investor
confidence in the eurozone, including delivering three interest rate
cuts and rolling out more than 1 trillion euros (1.25 trillion
dollars) in cheap loans.
Relaunching the bond-purchasing programme has already won broad
support from German Chancellor Angela Merkel, as well as other
European leaders.
But securing a consensus within the ECB to relaunch the government
bond-buying programme could well prove to be the biggest challenge
facing Draghi, who turns 65 on Monday.
Underscoring the power struggle underway in the Frankfurt-based
central bank, Bundesbank President Jens Weidmann considered resigning
in recent weeks, according to a report in Germany's daily Bild.
A spokeswoman for the Bundesbank, which is the most powerful
national central bank in the 17-member eurozone, declined to comment
on the Bild report.
The 44-year-old Weidmann has spearheaded criticism of the plans,
which Draghi outlined at a press conference earlier this month. As
Bundesbank chief, Weidmann is also a member of the ECB's governing
council.
At the heart of the Draghi plan, the ECB would only consider
buying the bonds of cash-strapped countries if they agree to strict
conditions set by the eurozone bailout fund.
But the hard money Bundesbank hawks are opposed to monetary policy
instruments being used to help clean up the state finances of member
states. They see this as a threat to the ECB's independence.
In an interview last weekend, Weidmann was more blunt, saying the
ECB's move could become "addictive" for heavily indebted eurozone
states.
However, in an article published in the German weekly Die Zeit on
Thursday, Draghi hit back at his critics, saying the ECB would always
act with the limits of its mandate.
"Yet it should be understood that fulfilling our mandate sometimes
requires us to go beyond standard monetary policy tools," he wrote.
But - less than a week before the ECB meeting - it remains unclear
what Draghi will announce at his press conference following the
governing council meeting.
Already there have been reports that the ECB might be forced to
put the announcement on hold until after a September 12 ruling by
Germany's top court on constitutional challenges to key parts of
Europe's crisis-management strategy. This includes the new permanent
euro bailout fund, the European Stability Fund.
"Mario Draghi is likely to hold back at the press conference with
details of the bond plans in advance of the decision by the Federal
Constitutional Court," said Ulf Krauss, economist with Germany's
Helaba bank.
He went on to say that "dexterity will also be required in the
face of growing German criticism of the monetary policy course."
Adding to the challenges facing Draghi was the release of figures
Friday showing unemployment climbing to 11.3 per cent in July and
annual inflation increasing to 2.6 per cent in August.
The rise in inflation is likely to reduce the ECB's room to
manoeuvre on delivering a further cut in interest rates in a bid to
to spur economic growth.
