Jens Weidmann warns
printing billions of euros for indebted countries would deter them from
implementing reforms. Photograph Eric Piermont/AFP/Getty Images
European Central Bank plans to increase lending to struggling eurozone members risks becoming "addictive like a drug", Germany's central bank chief warned on Sunday.
Jens Weidmann said printing billions of euros and offering them at low interest rates would make life too easy for indebted countries and deter them from making cuts in public expenditure and pushing through economic reforms.
"Such a policy is for me close to state financing via the printing press," Weidmann told Der Spiegel magazine. "We should not underestimate the risk that central bank financing can become addictive like a drug."
The hard hitting message came as other European nations appeared to soften their stance on Greece and other vulnerable single currency members rescued by ECB loans.
Austrian chancellor Werner Faymann said Greece should get more time to repay its debts, in a clear break with Germany, which has so far opposed any delay.
Spain is only days away from announcing the details of its €100bn (£79bn) bank bailout which uses cheap funds from Brussels to underwrite its struggling banking sector. But there are fears Madrid remains vulnerable to collapse and will need further support from eurozone institutions.
The ECB is discussing proposals to offer cheap loans when interest rates on government bonds soar towards a pre-determined ceiling.
Deep divisions among the eurozone's 17 nations are coming to the fore in response to special pleading by Greece for a relaxation in the terms of its bailout.
Antonis Samaras, the Greek prime minister, is touring the continent in search of support from eurozone members for a two year extension on loan repayments under the terms of its second €130bn bailout package.
Athens is concerned that without an extension political unrest will increase and any hopes of reform will disappear.
Germany and France said after meetings with Samaras that Greece's leaders must show their commitment to reform before winning concessions.
Austria and others in the eurozone's "core" of stronger economies have often provided advance warning throughout three years of crisis of the line the bloc's leaders will finally take.
"I see quite a good chance that we will arrive at an outcome with Greece that the Greeks stick to their agreements with the EU but in return get more time for the repayment," Faymann told newspaper Oesterreich.
"The most important thing is that the Greeks stick to the reforms and savings targets agreed with us. If that is guaranteed, I am in favour of a delay in the repayment," he said, adding that the delay could be two or three years.
The ECB's plans have become a focus of dispute, with officials from countries such as Spain and Italy pushing for the central bank's boss Mario Draghi, to sanction widespread intervention in secondary bond markets.
ECB officials from northern eurozone countries, including the Netherlands and Finland, only want the central bank to intervene in short bursts when bond yields explode upwards.
The ECB is controlled by a board of six nominated officials and a broader committee of representatives from member states.
Germany's Finance Ministry is concerned the new ECB plan could endanger the bank's independence, Der Spiegel said.
As a condition for ECB support, a country will first have to seek an aid programme from the eurozone's bailout funds. This is subject to approval by finance ministers, and central bankers are worried this makes their action dependent on politicians.
To avert this risk, German finance ministry officials were exploring an option where Spain or Italy would make a commitment on economic reforms to the European Commission – an unelected body – as a condition for ECB support, rather than accepting an aid programme from the bailout funds, Der Spiegel said.
Weidmann, who reflects the broad antagonism inside Angela Merkel's right wing coalition against further bailouts, said: "In democracies, it is parliaments and not central banks that should decide on such a comprehensive pooling of risks."
He did not see an immediate inflation threat from the new bond-buying programme, but added: "If monetary policy allows itself to become a comprehensive political problem solver, its real goal risks moving further and further into the background."
Weidmann warned against tieing the ECB "to guarantee keeping member states in the eurozone at any price."
On Greece's position in the bloc, he said it was important that "no further damage to trust in the framework of the currency union arises, and that the economic policy requirements of the aid programme retain their credibility.
http://www.guardian.co.uk/business/2012/aug/26/german-central-bank-chief-ecb-loans
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