Bundesbank chief says ECB bond buying "like a drug"

Sun Aug 26, 2012 8:27am EDT
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By Paul Carrel

FRANKFURT (Reuters) - The head of Germany's Bundesbank stepped up his opposition to the European Central Bank's latest moves to battle the euro zone's debt crisis on Sunday, saying that plans to buy bonds risked becoming a drug on which governments would get hooked.

In the latest sign of a deepening rift within the ECB that has worried financial markets, Jens Weidmann warned in an interview in weekly Der Spiegel that the buying program verged on the taboo for the bank of outright financing of governments.

He also hinted he was not alone at the ECB in his concern over the program - in contrast to indications by the bank's President Mario Draghi that Weidmann had been isolated in expressing reservations.

The ECB is being forced to take a greater role in fighting the crisis while governments negotiate legal and political hurdles to coordinating a longer-term response, but the Bundesbank wants to limit the scope of central bank action.

Draghi is expected to detail the bond-buying plan after a September 6 meeting of the bank's 23-member Governing Council.

"Such a policy is for me close to state financing via the printing press," Weidmann told the weekly magazine. "In democracies, it is parliaments and not central banks that should decide on such a comprehensive pooling of risks."

Financing governments has long been a line in the sand for the ECB. Weidmann's predecessor as Bundesbank chief, Axel Weber, quit last year in protest at the ECB's existing, but now dormant, bond-buying scheme - the Securities Markets Programme (SMP).

"We should not underestimate the risk that central bank financing can become addictive like a drug," Weidmann said.   Continued...