Germany warns on ECB buying

Germany's economy minister Philipp Roesler has warned the European Central Bank (ECB) against any large-scale government bond purchases, amid market expectations the ECB is poised to buy more Spanish and Italian debt to drive down yields.

Mr Roesler, who is also Germany's vice chancellor and leader of chancellor Angela Merkel's junior coalition partner the Free Democrat Liberals (FDP) told the Neue Osnabruecker Zeitung (OZ) in an interview published today, the ECB had to remain independent.

"Preserving price stability must be the principal role of the ECB and not the financing of state debt. Buying government bonds cannot be a permanent solution. We can only establish new trust in the euro zone if budget discipline is strictly maintained and structural reforms are implemented."

ECB president Mario Draghi on Thursday pledged to do whatever was necessary to protect the euro zone from collapse, prompting hopes of an ambitious new programme.

Financial markets rallied on the pledge.The crisis in the euro zone has been thrown into higher gear by a surge in borrowing costs for Spain and by an acknowledgement by Brussels officials that Greece is too far off its targets to be saved by its second bailout package, agreed just five months ago.

Mr Roesler ruffled feathers last weekend when he told a German broadcaster that a Greek euro zone exit was no longer a taboo for experts and had lost "its fear factor."

A party colleague branded his remarks "reckless."

In his interview with OZ Roesler dismissed widespread criticism of his stance both from Athens and within his party.

"In my ministry we've seen that the Greek government has been unable to implement very much."

His comments come amid a growing chorus of voices within Dr Merkel's centre-right coalition that insist there can be no new aid for Greece and that a Greek exit could be imminent.

"Greece cannot be saved, that is simple mathematics," Michael Fuchs, deputy leader of the parliamentary group of Dr Merkel's Christian Democrats and their Bavarian sister party told weekly business magazine Wirtschaftswoche.

"The government has neither the will nor the means to implement reforms," he said.

Hermann Otto Solms, a financial affairs expert for the FDP, also underlined in an interview with Wirtschaftswoche that should inspectors from the so-called troika criticise Athens's progress there should be no new aid for Greece, and it would have no choice but to leave the single currency.

Germany came in for heavy criticism from Spain's Europe minister Inigo Mendez de Vigo, in an interview with German daily Bild, published today.

He warned Berlin not to forget the huge amount of aid it received from other nations as it lay in ruins after the second World War, and urged Germany to show more political and economic solidarity in tackling the euro zone crisis.

He also called for action on the European Central Bank to help put an end to the "absurdly high rates for Spanish bonds," and warned German politicians from talking so much about a Greek euro zone exit that it became a self-fulfiling prophecy.

Reuters