The head of Germany's Bundesbank has criticised the European Central Bank's recent cut in borrowing costs and its pledge to buy repackaged debt, saying they took pressure off governments to implement needed reforms.
Jens Weidmann told Der Spiegel magazine that the moves went beyond previous attempts to encourage banks to lend more, and could free banks of risk at the cost of the taxpayer.
"In my view the recent decisions by the ECB Council (are) a fundamental change of course and a drastic change for the ECB's monetary policy," he said in an interview published over the weekend.
"No matter how you think about the content of the decisions, the majority of the ECB Council members are signalling with it that monetary policy is ready to go very far and to enter new territory," he stated.
Though this is not the first such criticism of the ECB from Germany's influential central bank, the tone underscores the challenges for the ECB should it ever need to extend its programme of asset purchases to government bonds.
The comments come at a difficult time for the ECB, just days after an offer of cheap credit to banks fell flat, calling into question a central plank in its plans to shore up the euro zone's flagging economy.
While economic recovery is in full swing in the US and the Federal Reserve there has started to withdraw support, the ECB has stepped up efforts to unblock lending to firms and boost growth, for example by buying repackaged loans.
As part of its stimulus, the ECB plans to buy tranches of low-risk asset-backed securities (ABS). The ECB said it would also buy riskier tranches if governments guaranteed them, but that idea was swiftly rejected by France and Germany.
Weidmann warned that depending on the exact design of the plan, "banks could be freed of risks at the cost of taxpayers", arguing that therefore it was key that no "significant risks of individual banks of countries should be taken on."
The ECB should only buy assets with little risk, Weidmann said, but doubted there was enough volume of those on the market to reach the proposed targets.
Previous rounds of cheap ECB loans for banks and borrowing costs close to zero have done little to boost lending to companies, with much of the money instead spent on government bonds. Critics fear a similar fate for the new scheme.
Some banks were reluctant to participate in the first round of cheap credit on Thursday, possibly for fear that it could single them out as struggling just weeks before the results of an ECB-led asset quality review (AQR) and stress tests.
Weidmann reiterated he saw the likelihood of deflation as "very low".
Asked about France and Italy, Weidmann said the euro zone would not emerge from its troubles while the two countries did not implement tough structural reforms.
"The longer (these) two big countries do not create the conditions for growth and stability, the longer weakness in the euro zone will continue and with it the pressure on monetary policy," he said.
Draghi says TLTRO programme operating as planned
European Central Bank chief Mario Draghi has dismissed market disappointment about demand from banks for a new lending programme launched last week, saying it had been within the expected range.
Addressing the European Parliament in Brussels, the central banker said that the Targeted Long-Term Refinancing Operation (TLTRO) to pump more liquidity into the financial system was on track but needed time to take full effect.
The Frankfurt-based central bank reported Thursday it had leant €82.6bn to 255 banks as it began the programme, designed to boost the economy by encouraging private-sector loans.
"This is within the range of take-up values we had expected based on banks' revealed behaviour under previous programmes," Draghi said.
The amount borrowed by euro zone banks came in below forecasts by analysts who had pencilled in an uptake of at least €100bn for the TLTRO.
Draghi noted that in December banks would have another opportunity to borrow funds under the programme.
This will entitle them to borrow an amount "equivalent to up to seven percent of their outstanding stock of loans to the non-financial private sector", excluding loans for house buying.
"The September and December operations should be assessed in combination," Draghi said.
The second round of lending is scheduled for December 11.