ECB’s Novotny….growing concern about Trichet strategy

Slog sources confirmed the depth of disagreement inside the EU’s Frankfurt-based Central Bank (ECB) this morning. Several papers have the story, which has more than erased the Chinese wall-messages put up by beleaguered boss Jean-Claude Trichet over the weekend.

I understand that senior ECB director Jurgen Stark is not alone in taking a critical view of Trichet’s Bring & Buy Sale approach to saving the Euro. This appears also to have been a political step too far for Austrian ECB executive Board member Ewald Novotny, who has become more hawkish of late. Up until late March 2010, Novotny continued to be supportive of Greek problems while insisting that “when I am a member of the club, then I have to stick to the rules of the club”. Privately he is moving towards the Stark view that Trichet’s politically-pressured bond/Euro swap guarantees “can only end in every EU country becoming a toxic borrower” said a person close to the situation last night.

Senior ECB member and author of the highly controversial pan-EU sovereign State settlement system Gertrude Tumpell-Gugerell is maintaining a low profile….perhaps a good idea, given that many cite her as having made structural changes after 2006 that will worsen the contagion effect – and may have added to easier trading of junkish bonds.

Outgoing Vice-President Lucas Papademos – along with fellow ECB board members Gonzales-Paramo, Liikanen and Smaghi – remain pro-Trichet Doves, albeit with increasing doubts.

“There is a growing feeling of being overwhelmed” said our source, “and that Germany’s Bundesbank will end up in charge. What the market wants to see is discipline – and a view is gaining ground that only the Germans can bring that to the party”.

Agreeing with that sentiment to some extent, Marco Annunziata of UniCredit Group in London said, “We need a credible strengthening of the euro zone’s fiscal rules to ensure discipline will be maintained after the immediate crisis is over.”

Influential financial website Bloomberg opines this morning that ‘the drumbeat of scepticism about policy-makers’ ability to end the crisis is getting louder…[but]….changes to EU budget policy may take months or years to be implemented, and for now governments across the region are scrambling to patch up their budgets’.

“The great Euro experiment seems to be unwinding” remarked Reuters’ Felix Salmon last Friday. The Asian markets today agreed with him: the Nikkei fell 2.2% (something it can ill afford to do) and the Hang Seng dropped 3%.

The Euro fell further against the Dollar overnight, and further during early trading today. Just one major currency lost ground against it today – Sterling. Imagine that.