The head of Germany’s Bundesbank has warned it will be “virtually impossible” to decide if a divergence of borrowing costs between eurozone countries is justified, arguing it would be “fatal” for governments to rely on the European Central Bank’s support.
Joachim Nagel’s comments in a speech on Monday were the first sign of serious disagreement at the ECB over its plan to develop a new asset purchase tool to counter any “unwarranted” surge in the bond yields of more vulnerable countries once it starts raising interest rates.
Nagel said “it would be fatal if governments were to assume that the eurosystem will ultimately be ready to assure favourable financing terms for the member states”, and that rate-setters could find themselves in “dire straits” legally over the tool.