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German Bundesbank chief rips into ECB over Greek loans
May 14, 2015 / 2:15 PM / 3 years ago

German Bundesbank chief rips into ECB over Greek loans

BERLIN (Reuters) - 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.

Greek banks have been drawing emergency liquidity assistance (ELA) from the country’s central bank, a funding lifeline provided in exchange for collateral. The ECB has been raising the cap on the funds weekly, most recently on Tuesday by 1.1. billion euros to 80 billion euros (£57.7 billion).

“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, himself a member of the ECB’s Governing Council, said the decision about Greece’s future in the single currency bloc was “clearly” in the hands of politicians.

He warned against putting too many demands on the central bank, saying it was “not omnipotent” and he was concerned about the increasing politicization of central banks and the growing expectations placed on them. He said the ECB would not be in a position to solve Europe’s problems.

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.”

Reporting by Michelle Martin; Editing by Jeremy Gaunt

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