ECB President Mario Draghi failed to gain support from leaders of the EU countries in the ABS (asset-backed security) purchase program. The policy maker called on European governments to assist in the program implementation, but encountered rejection. The head of Germany's central bank said Saturday he is against public guarantees for asset-backed securities as part of the European Central Bank's ABS purchase program, contradicting comments by Draghi a day earlier. Thus, Germany and France, the largest EU economies, put them at odds with the ECB President.
Mr. Draghi said Friday that the ECB's asset purchase would be more effective if it was extended to the mezzanine tranche of ABS, which is riskier than the senior tranche that the program is targeting for now. However, Mr. Draghi said that for such an extension, the ECB would require public guarantees for these tranches, effectively moving the risk of such purchases off the ECB's balance sheet.
"One has to be aware of this transfer of risk when the Eurosystem [of eurozone central banks] buys risky papers or when, as is also being discussed right now, the European Investment Bank issues public guarantees for ABS," Mr. Weidmann said following a meeting of eurozone finance ministers and central-bank governors in Milan.
“Providing public guarantees does not make sense as this measure curbs securitization cost,” the statement reads. The ABS program, which is expected to kick off in October, forms part of ECB efforts to improve the supply of credit in the eurozone. In an ABS, banks bundle loans they have made to companies or households, which can then be sold to other investors. Bundesbank’s Governor Jens Weidmann used to criticize severely resolutions of the ECB. In particular, he strongly disagreed on further rates slashing by the ECB as well as ABS purchase program.
