The ECB Just Suffered A Stunning Leak

Mario Draghi
ECB President Mario Draghi at the monthly ECB news conference in Frankfurt March 6, 2014. REUTERS/Ralph Orlowski

The New York Times has got hold of several months worth of European Central Bank minutes, running between May 2012 and January 2013.

The ECB is notoriously secretive, and unlike the Federal Reserve, Bank of Japan and Bank of England, releases no immediate minutes from its governing council minutes: it waits for 30 years. Since the eurozone hasn’t existed for that long, none have yet been released.

But the NYT just got its hands on some, and the details show the massive split at the heart of the ECB during the financial crisis in Cyprus. German policymaker Jens Weidmann was calling privately for ECB assistance to at least one of Cyprus’ struggling banks to be curtailed:

Fearing possible contagion if the bank failed, the ECB’s governing council, a decision-making arm consisting of 24 members, had approved an emergency loan request by one its members, the Central Bank of Cyprus, in late 2011.

As 2013 approached, the short-term loans to Cyprus Popular Bank had grown to €9 billion, about two thirds the size of the Cypriot economy, and Jens Weidmann, the hawkish head of the German Bundesbank, had begun to forcefully argue that this exposure was too large, according to the minutes of governing council meetings.

By approving the loans — which were disbursed by the central bank of Cyprus — Weidmann said that the ECB was violating a core tenet. That rule holds that banks on the verge of failure should not be bailed out with additional loans.

This won’t be entirely surprising to ECB watchers, who are aware that Weidmann is much more hawkish than other members. But it does put clearly what he was saying for the first time.

If the New York Times has a full series of minutes from May 2012 it would also cover president Mario Draghi’s “whatever it takes” speech, and show any major splits there. The eurozone’s policymakers and governments are already strained by the bloc’s terrible economic performance, and these revalations could make relations even worse.

The ECB has responded to the claims with a statement. They say the council was in full agreement that they needed confirmation that the Cypriot bank was solvent: