Munich, 11 December 2015 – Ifo President Hans-Werner Sinn has criticised uncontrolled government bond purchases by national central banks. “This course of action is astounding. The situation needs to be cleared up immediately”, said Sinn on Friday in Munich. “It is a scandal that money creation of 358 billion euros apparently took place and that ECB President Mario Draghi, by his own admission, was unaware of what these funds were going to be used for.”
Italy alone purchased government bonds worth 108 billion euros (at the end of 2014) via a secret Agreement on Net Financial Assets (ANFA); and 82 billion euros worth of these bonds were purchased with newly created money (Item 7.2 Other securities, Consolidated Financial Statement of the Eurosystem). “This highlights another obscure aspect of the asymmetry in money creation measured by Target balances,” added Sinn.
The national extra money creation, which was also caused by ELA credit and a drop in the quality of required collateral, did not constitute monetary policy in the narrower sense of the term, but was largely a bail-out policy to rescue ailing banking systems and states. It was a circumvention of the credit conditions that the international capital market would have demanded.
“The fact that the extra money creation, as we now know, was even used to purchase vast quantities of government bonds without ECB controls, gives grounds for suspicion that the prohibition of state financing has been violated,” said Sinn. He was referring to Article 123 of the Treaty on the Functioning of the European Union.
Lecture by Prof. Sinn on Monday, 14 December in Munich
Ifo Business Climate Index on Thursday, 17 December
With best wishes