Slog inside track on ECB Board split vindicated as Weber, Draghi and Stark join bond purchase hawks.

Dark clouds on the horizon for the eurozone
as ECB revolts against political interference.

As exclusively reported here over a fortnight ago, the pro-German hawks on the EU central bank’s board are gaining ground.

Speaking about the (in The Slog’s view insane) sovereign-bond purchase programme, ECB Board member and Bundesbank Head Axel Weber said today, “The policy entails stability risks and must be precisely targeted and limited. In a synchronised statement, Bank of Italy Governor Mario Draghi said in Rome, “These measures will have to be discontinued as quickly as possible, as soon as the markets spontaneously resume trading of the securities of the countries involved”. The Slog also hears from German contacts that the country’s Chief Justices will express misgivings (at least) about the bond-purchases as being unconstitutional under Bundesrepublik law.

The problem remains that spontaneous resumption of securities trading in the region is about as likely to happen as spontaneous combustion in a swimming pool. This somewhat bleak view is shared by Financial Times Germany guru Wolfgang Munchau, a man whose pessimism to date has been right on the money. He points out that none of Italy, Spain or Greece proposes major structural reform. France’s powerful CGT will also resist this, even if Sarkozy doesn’t.

The Slog expects the market-led devaluation of the Euro to continue….but the theory being advanced recently that this will make the debtor EU States more competitive is a pipe-dream: it would have to devalue by so much that banks and politicians would be forced to step in to avoid every non-EU investor treating the Union as radioactive. President Obama’s export plans would also ensure some fairly drastic action from that quarter. And last but not least, an increase in Germany’s budget surplus would simply make the EU’s north/south monetary imbalance that much worse.

The European consumer’s confidence in the economic outlook ‘unexpectedly’ worsened in May, and inflation accelerated less than ‘experts’ forecast, as the euro region’s debt crisis shook markets still further in overnight and early trading. I use the inverted commas advisedly there, as pretty much since the end of 2007, every likelihood has been unexpected – and almost every expert proved wrong.

The bond market yields, lenders and currency dealer sentiments will yo-yo up and down with each day’s spin from governments and bankers, but the unpleasant truth about the eurozone isn’t going to go away: we have another EU summit in June, but individual member governments are already diluting the fairly tepid proposals of the last one.

The simple reality is that the EU is a loose arrangement of members with one quasi-federal currency. Not only was that never going to work, it is exacerbated by out-of-touch control-freak regulators in Brussels. Like many politicians in their own States, the current nature of the European Union is going to be swept away by the speed of events.

Best to be out of the way when that happens.