ECB's Draghi meets Merkel ahead of crunch meeting

By Reuters

Jan 17, 2015 09:47 PM EST

German Chancellor Angela Merkel met with European Central Bank President Mario Draghi on Wednesday, a government spokesman said, ahead of a key ECB meeting at which the bank is poised to announce a scheme to print fresh money to buy state bonds.

The meeting happened on the same day that a top EU court adviser removed a hurdle to ECB plans to buy government bonds to bolster the euro zone economy, a step known as quantitative easing (QE).

Launching the scheme, however, faces political obstacles such as opposition from Germany's Bundesbank and a skeptical public.

Against this backdrop, Draghi visited Merkel at her office in Berlin. "It was one of the informal meetings that take place regularly," the government spokesman told Reuters on Friday.

A spokesman for the ECB said: "The ECB naturally maintains regular contact with European leaders."

But while the German government described the meeting as informal, German magazine Der Spiegel said Draghi had outlined his plans for QE, including a framework to leave the burden of risk with national central banks rather than the ECB.

The magazine said that each central bank would be limited to buying a maximum of up to 25 percent of its country's outstanding debt, taking the responsibility and risk for buying the bonds itself.

Each national central bank would be liable "at least for the half" of any sovereign risk it shoulders, weekly newspaper Frankfurter Allgemeine Sonntagszeitung reported, without citing named sources, in the media summary of an article.

Reuters has also reported that ringfencing risk at a national level, viewed critically by some who say it heralds the disintegration of the euro, may be one of the hallmarks of the new scheme.

In the magazine report, the head of the Dutch central bank, Klaas Knot, supported this idea.

"If every central bank would only buy the bonds of its own country, then it would reduce the risk that it would come to an undesired redistribution of financial risks," he said.

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