The head of Germany’s Bundesbank ripped into the European Central Bank on Thursday, saying emergency funding for Greek banks broke the taboo of financing governments and it was not up to central banks to decide who was or wasn’t in the euro zone.
Jens Weidmann also said it was questionable whether money printing by the ECB to boost the euro zone economy and halt deflation was necessary…
“Given the ban on monetary financing of states, I don’t think it’s ok that banks which don’t have access to the markets are being granted loans which then finance the bonds of their government, which doesn’t have access to the markets itself,”Weidmann told German newspaper Handelsblatt according to advance extracts of an interview to be published on Friday.
Asked whether he would be prepared to stop emergency funding to Greek banks and therefore force Athens out of the euro zone, Weidmann said central banks were not responsible for “the make-up of the euro zone or granting aid payments”.
Weidmann also hit out at the ECB’s bond-buying scheme known as quantitative easing (QE), saying: “The question remains whether the QE programme was really necessary given our primary aim of price stability and how we should assess the risks and side-effects that inevitably come with such a scheme.”
He said QE made Eurosystem central banks the biggest creditor of governments and monetary and fiscal policy were becoming increasingly interconnected.
“That can increase the political pressure on central banks when it comes to future monetary policy decisions, especially as member states’ drive to reform is also being weakened.”
Weidmann has for some time been the lone voice of reason among EU officials (with the exception of the incorrigible Herr Schaueble) and he is of course entirely correct in his assessment because ELA is indeed akin to the monetary financing of governments and of course when it comes to the “risks and side-effects” of QE “schemes”, no one knows better than Weidmann as he is being forced, on a monthly basis, to break the market for the debt issued by his own government by commandeering all bunds yielding better than -0.20% and hoarding them on the Bundesbank’s balance sheet.
