Head of Germany’s central bank criticises ECB stimulus plan

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Reuters

BERLIN: The head of Germany’s Bundesbank has criticised the European Central Bank’s (ECB) recent cut in borrowing costs and its pledge to buy repackaged debt, saying they took pressure off governments to implement needed reforms. Jens Weidmann told Der Spiegel magazine that the moves went beyond previous attempts to encourage banks to lend more, and could free banks of risk at the cost of the taxpayer. “In my view the recent decisions by the ECB Council (are) a fundamental change of course and a drastic change for the ECB’s monetary policy,” he said in an interview published on Sunday. “No matter how you think about the content of the decisions, the majority of the ECB Council members are signalling with it that monetary policy is ready to go very far and to enter new territory.” Though this is not the first such criticism of the ECB from Germany’s influential central bank, the forthright tone underscores the challenges for the ECB should it ever need to extend its programme of asset purchases to government bonds. The comments come at a difficult time for the ECB, just days after an offer of cheap credit to banks fell flat, calling into question a central plank in its plans to shore up the euro zone’s flagging economy. While economic recovery is in full swing in the United States and the central bank there has started to withdraw support, the ECB has stepped up efforts to unblock lending to firms and boost growth, for example by buying repackaged loans. As part of its stimulus, the ECB plans to buy tranches of low-risk asset-backed securities (ABS). The central bank said it would also buy riskier tranches if governments guaranteed them, but that idea was swiftly rejected by France and Germany.

 

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