Erik Nielsen, chief economist at Unicredit, said Draghi tried to win Bundesbank approval by adding stringent conditions: Governments would have to apply to the bailout fund for help and agree to cut their deficits and take other steps to improve their finances. "So, without the Bundesbank on board, Draghi needed to put so many conditions in front of the potential use of the (bond buying program) that the German general public, political leaders and media would broadly accept it."
While the Bundesbank held out, the addition of conditions appears to have won the approval of the Netherlands, Finland and Joerg Asmussen, the other German representative on the governing council and a former German finance ministry official.
Draghi's decision to add strict guidelines could have been made to avoid a repeat of the ECB's previous foray into bond-buying. That effort began in May 2010 under Draghi's predecessor, Jean-Claude Trichet, and it bought some €210 billion in bonds. It was stopped in March after it failed to decisively lower yields.
The Trichet program didn't work in large part because the Bundesbank objected loudly at the time, saying the purchases blurred the line between monetary policy and bailing out governments. The criticism led markets to think the ECB wasn't solidly behind the program.
Joerg Kraemer, chief economist at Commerzbank, warned that Draghi's latest conditions likely won't be enough to win over the Bundesbank.
Objections from the German national bank would not make bond purchases ineffective, he said, but the program could fail if rescued governments pedal back on their attempts to fix their problems.
"In the short run I think the ECB will continue to ignore the Bundesbank. In the long run they cannot afford to because the Bundesbank has huge influence on the German public, it's their biggest shareholder and they cannot ignore it if the German public does not support the ECB."
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