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Wary Germans warn ECB cash machine won't get Europe on its feet
January 22, 2015 / 4:19 PM / 3 years ago

Wary Germans warn ECB cash machine won't get Europe on its feet

BERLIN (Reuters) - The ECB’s plan to pump cash into the euro zone met with dismay in Europe’s biggest economy, with many Germans worried they will bankroll measures that remove incentives for struggling member states to carry out the reforms prescribed by Angela Merkel.

The chancellor, paying lip service to the independence of the European Central Bank, reiterated her usual comment that the ECB’s bond-buying programme “should not obscure” the need for structural reforms driven by member states’ politicians.

But top-selling daily Bild summed up the mood with a headline on its website: “What happens to my money now? ECB takes billions of debt off ailing euro states.”

Bild’s wariness was shared by German economists like Stefan Kooths at the Kiel Institute, who fretted: “This ultra-expansive path is taking the euro system deeper into uncharted territory.”

Politicians and business leaders from the mainstream of Merkel’s conservative bloc to the Eurosceptic fringes voiced the shared concern that ECB President Mario Draghi’s actions failed to address the root causes of euro zone stagnation.

“Monetary policy measures are no substitute for structural reform decisions by national governments,” said Ralph Brinkhaus, deputy parliamentary floor leader for Merkel’s conservatives.

“The ECB alone can’t create euro zone recovery. We need higher growth,” said Ulrich Grillo of the BDI business lobby.

But the fiercest critics of the policy known as quantitative easing or QE went much further, with Hans-Werner Sinn, head of Munich’s influential Ifo economic think-tank, calling it “illegal, unsolid state financing by printing money”.

Sinn, an outspoken opponent of euro zone bailouts, said the measures violated European treaties. Peter Gauweiler, a Bavarian conservative lawmaker who has led efforts to block the bailouts and QE in court, said he was already preparing a lawsuit.

Gauweiler, whose last complaint against QE was rebuffed by the European Union’s top legal advisor, argues that ECB bond-buying means illegally sharing liability for other states’ debt.

One group that may benefit is Alternative for Germany (AfD), which was set up to oppose the euro zone bailouts but has grown into a right-wing party with seats in the European Parliament and German state assemblies which poaches votes from Merkel.

AfD founder Bernd Lucke called it “a desperate act by the ECB” that was like issuing common euro bonds “by the back door”.

“You can’t pull the wool over the eyes of the German people like this,” Lucke told Reuters, repeating his view that struggling member states like Greece should leave the euro zone.

Even those supporting the ECB warned that its strategy was not a silver bullet. Merkel’s Social Democrat (SPD) coalition partners, who back the pro-growth arguments of left-leaning governments in France and Italy, said the ECB had boosted the chances of recovery but structural reforms were still needed.

Additional reporting by Madeline Chambers, Andreas Rinke and Scot Stevenson; Writing by Stephen Brown; Editing by Catherine Evans

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