ECB mulls €1 trillion bond move as Germany warns on QE

The head of Germany's Bundesbank warned the European Central Bank on Friday against copying the money printing used in the United States and Japan, saying that it would not have the same impact in Europe.

Speaking a day after ECB president Mario Draghi signalled further action to shore up the euro zone economy as soon as early next year, Jens Weidmann cautioned that so-called quantitative easing may not work in Europe.

“You cannot simply apply the same formula in Europe that has enjoyed success in the US or in Japan,” Mr Weidmann told a conference in Frankfurt, commenting on the prospect of further money printing to buy assets such as state bonds.

“In the USA, there is a central state that issues bonds that are very safe and secure. We don’t have that central state here,” said Mr Weidmann, who also cautioned that making it too cheap for countries to borrow could discourage them from reforming.

Mr Weidmann and fellow German ECB policymaker Sabine Lautenschlaeger opposed Thursday’s ECB decision to firm up language on the expansion of the bank’s balance sheet, central bank sources said.

Mr Weidman's comments on Friday followed German finance minister Wolfgang Schaeuble saying expansive monetary and fiscal policies were a cause of economic problems, not a solution to them.

Commenting on the idea that economic weakness required an expansive monetary and fiscal policy, Mr Schaeuble said: “I am not convinced of this. Rather, I am of the view that this approach is not the solution, rather the cause (of economic woes).”

The remarks from both men came a day after the president of the European Central Bank said the bank would decide early next year whether to take further action to revive the euro zone’s ailing economy.

Mr Draghi underlined the central bank’s commitment to supporting the economy of the 18-country euro zone and argued the case for printing money to buy assets such as government bonds.

He also signalled that opposition from Germany or other euro zone governments would not keep the ECB from acting.

Reuters