The plans have major implications for monetary union reports The Telegraph, dashing hopes in Southern Europe that Germany might accept a few years of mini-boom at home to help lift the whole system off the reefs.
Andreas Dombret, a key member of the Bundesbank, said the body would be given powers to check “excessive credit growth” and impose “maximum leverage ratios” to nip economic overheating in the bud. The Bundesbank will be able to impose “counter-cyclical capital buffers” on lenders, and use “macro-prudential haircuts” in the securities markets. It is understood that the menu of new tools will include limits on the loan-to-value on mortgages along the lines of those used in Hong Kong and other Asian states.
The new framework – introduced by German government in a draft law this week – is partly inspired by the Bank of England’s new system but it also has a German twist.
The authorities in Berlin and Frankfurt are worried that the ECB’s 1pc interest rates are too low for conditions in Germany, where unemployment has fallen to its lowest in 20 years.
German house prices rose 5.6pc last year after a decade of stagnation. Officials in Frankfurt are watching the property data closely, fearing that Germany may succumb to the sort of housing bubble that engulfed the Club Med bloc in the early years of EMU.
“The Bundesbank does not want to be blamed for making the same mistakes as central banks in Ireland and Spain where they did not address asset bubbles early enough,” said Bernhard Speyer from Deutsche Bank.