KARLSRUHE The head of the Bundesbank warned on Thursday against using the European Central Bank's bond-buying programme, which sees Germany secure the lion's share of the purchases, to bankroll the bloc's most indebted countries.
Faced by the risk of running out of short-term German bonds to buy, the ECB is looking at options to keep its 1.74 trillion euros ($1.96 trillion) money-printing programme running, including changing the amount of bonds it buys from each country.
Jens Weidmann said targeting purchases towards the most indebted countries would put taxpayer money at risk if central banks suffer a loss on that investment.
Instead, the Bundesbank's President favoured sticking to the current rules, whereby purchases follow the relative size of each country's economy, or 'capital key', and are carried out by national central banks.
"We should stick to this benchmark of the current programme if we don't want to get the Eurosystem into hot water," he told an audience in Karlsruhe.
Germany is the biggest recipient of the ECB's largesse. Its sovereign bonds account for roughly 26 percent of all government paper bought by the ECB since the start of the programme.
That is actually more than it should get under the "capital key" calculation, as the Bundesbank, along with the central banks of France, Italy and Spain, has had to make up for the exclusion of crisis-struck, junk-rated Greece and Cyprus from the ECB's purchases.
Weidmann, the most prominent hawk on the ECB's decision-making body, also said central banks should resist the urge to fine-tune the business cycle and warned against bowing to market pressure for even greater policy easing.
"It seems to me that central bankers are less susceptible to this misconception than some analysts who would like to see central banks take on ever greater responsibility and who call for ever greater market interventions," he said.
Inflation has missed the ECB's inflation target for more than three years and is currently stuck at zero.
Yet, echoing comments by Dutch governor Klaas Knot on Wednesday, Weidmann said the central bank should have some discretion when interpreting its mandate of keeping inflation just below 2 percent over the medium term.
"In this context medium term does not mean 'sometime in the distant future', but also not 'as quickly as possible and by any means'," he said.
(Reporting By Francesco Canepa and Andreas Framke; Editing by Andrew Heavens)