Is ice between ECB and Bundesbank melting?

Strifes between the European and the German central banks over the first’s bond purchase program could be relaxing. The German Constitutional court maintain appealed ECB’s stimulus program, with the Bundesbank’s support, on the grounds it does not adhere to primary European law, and exceeds ECB’s mandate.

Current priorities of the euro zone’s economy necessarily point to a high price of euro and a possible scenario of deflation. These presumably have made ECB’s members to tip the balance in favor of measures such as  negative interest rates or sovereign as well as corporate debt purchases. These actions have been repeadly suggested and in fact their implementation still remains in the air, but the change of direction in both banks speeches make the possibility more real.

Finland’s central bank  governor and ECB’s member Erkki Liikanen stated on Thursday that the institution has not finished its capacity to manage interest rates and mentioned  non conventional moves such as negative Finland interests, additional credit to the banking sector and also a purchasing assets program.

Regarding the euro’s exchange rate, Mr Liikanen said it is not an ECB’s monetary policy but is within the central bank’s evaluation over inflation. As for price levels, he suggested that ECB’s members   are aware that a too low inflation makes it difficult to reduce debt.  Furthermore, Slovakia’s member of ECB Josef Makuch also assured that Quantitive Easing was an option. In fact, the ECB could be studying some operational  and legal points to start the stimulus program.

German central bank’s chairman Jens Weidmann approached more openly than usual the possibility to fix negative deposit rates since they would be suitable to offset a higher exchange rate for euro. As for letting the ECB to buy European sovereign debt, he said the question is not out of discussions in order to fight prices drops. Behind Weidmann’s radical change of opinion could be a report that the Bundesbank published two days ago which anticipated an upturn of the German economy in the 2Q14 due to their strong links to Ukrainian  interests.

The rethoric is clearly changing, although both Mario Draghi as well as Jens Weidemann confirmed these measures were not urgent.

According to Santander Spanish analysts,

“a new program of monetary expansion could improve credit markets, favouring profitability in peripheral countries for several months. In this sense, the most profitable assets are Spanish mortgage bonds.”