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BUNDESBANK

ECB bond-buying ‘brings risks’: Weidmann

The head of Germany's central bank on Saturday voiced his "scepticism" about the ECB's decision to launch a trillion-euro bond-buying programme in a bid to ward off deflation and boost the eurozone economy.

ECB bond-buying 'brings risks': Weidmann
JJens Weidmann speaking at Berlin's Hotel Interconti in July. Photo: Soeren Stache/DPA

"I regard this decision with scepticism," Bundesbank president Jens Weidmann told the German daily Bild. 

Weidmann is a member of the the European Central Bank's council of governors that approved of the stimulus plan known as quantitative easing (QE) but he did not agree with the decision announced on Thursday.

"Buying sovereign debt, in a single currency union, is not like any other (monetary) tool. It brings risks," Weidmann told the paper. 

Critics, particularly in Germany, Europe's biggest economy, complain that the QE is a licence to print money to get governments out of debt and will lessen pressure for reform. 

The ECB plan to buy €60 billion of public and private sector bonds per month from March through September 2016 will mean that the central banks of eurozone countries will be "among the states' biggest creditors", Weidmann said.

He stressed the need for debt-hit countries not to be "negligent" with their budgets and to continue on a path of reforms to turn around their economies, a view also expressed by Chancellor Angela Merkel on Friday.

Opponents of QE are also concerned that taxpayers in stronger economies such as Germany's will have to foot the bill should any country default on its debt.  

But the ECB says its plan has been designed so that only 20 percent of the risk will be shared among the 19 nations using the euro. The rest will be shouldered by the national central banks of the countries concerned.

ECB

Inflation rose in Germany in December: report

Inflation in Europe's largest economy Germany clambered higher in December, official data showed Friday, but remained short of the European Central Bank's target for the 19-nation eurozone.

Inflation rose in Germany in December: report
Prices in Germany are rising, but not as fast as they should be. Photo: Jens Büttner / zb / dpa
Price growth hit 1.5 percent year-on-year last month, statistics authority Destatis said, some 0.4 percentage points higher than in November.
   
And it reached the same level when measured using the Harmonised Index of Consumer Prices (HICP) yardstick preferred by the ECB.
   
But while German price growth was headed in the right direction, it was still well short of the ECB's just-below-two-percent goal. Over the full year 2019, inflation averaged just 1.4 percent.
   
“There is little sign of sustained growing price pressure that could prompt the ECB to rethink its ultra-expansive monetary policy,” said economist Uwe Burkert of LBBW bank.
 
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Here's a graph put together by the German newswire DPA, showing how the inflation rate in Germany has fluctuated between 2008 and 2019. 
 
 
 
The ECB has set interest rates at historic lows, granted hundreds of billions of euros in cheap loans to banks, and bought more than 2.6 trillion euros ($2.9 trillion) of bonds in efforts to keep credit flowing to the economy, stoking growth and inflation.
   
But it has fallen short of its eurozone-wide price growth target for years, predicting last month it would inch up to just 1.6 percent by 2022.
   
Economists have pointed to both uncertainty over political events, like trade wars and Brexit, and long-term developments like ageing populations as possible reasons for sluggish growth and inflation.
   
Under new chief Christine Lagarde, the ECB plans to launch a wide-ranging “strategic review” this year, its first since 2003, that could adjust its tools or even reexamine the inflation target itself.
   
In the meantime, she has urged countries — like Germany — with sound government finances to lift spending in hopes of juicing the economy.
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