German fund managers urge ECB to wade into bond markets

A panel of Germany’s most prominent asset managers have put themselves on a potential collision course with Berlin by calling for Europe’s central bank to buy more troubled countries’ bonds.

German chancellor Angela Merkel has staunchly opposed a more wholesale move, on the grounds widespread ECB intervention in debt markets could equate to liquidity injections, which would fuel inflation.

But managers including DWS Investment’s Klaus Kaldemorgen, Loys AG’s Christoph Bruns, and independent wealth managers Peter Huber and Jens Ehrhardt have questioned whether inflation in the eurozone, currently at about 3%, is an immediate danger.

In any case, they added, the possible outcome if the ECB fails to step in would be far worse.

All four spoke on Friday at the fund manager summit of Cologne-based allocator Sauren.

Ehrhardt said: “The only way forward is for the ECB to buy the debts, which would have the side effect of raising liquidity. It would be difficult for Germany but it would be the only possibility. Merkel says we should not come in with the ECB, but maybe the euro would fall.”

Huber added the ECB should absorb debts, “as a debt crisis cannot be solved through more debt. It is a big task, and the ECB should be buying debt”. He suggested the current strategies being employed out of Brussels and Frankfurt were “buying time, but ultimately you make the situation even worse”.

Kaldemorgen added Washington’s two stints of quantitative easing had helped the US stock market rise sharply, “which did the economy there good, too. This would be a guide as to what to try [in Europe]. The ECB must buy the politicians some time to get their act together. I cannot come up with a better solution.”

The managers generally felt a eurozone form of liquidity injection would not cause immediate inflationary problems. Ehrhardt said: “We do not have a big danger of inflation, at least not in the coming year”.

Kaldemorgen noted for inflation to occur, extra money had to circulate freely in the economy – which he doubted was happening.

He urged equity investors to “look through the tunnel” of the coming three to six months, as recovery would come.

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