Merkel ally urges ECB not to buy struggling states’ bonds

BERLIN: A senior member of Angela Merkel’s party warned the European Central Bank not to pour money into Greece and other struggling Eurozone states through bond purchases, saying this would reduce pressure on them to enact much-needed reforms.
Michael Fuchs, deputy parliamentary floor leader of the German chancellor’s Christian Democrats (CDU), told Deutschlandfunk radio on Friday: “We shouldn’t pump extra money into these states, but rather make sure they continue along the reform path.
“I’d be grateful if (ECB President Mario) Mr Draghi would make statements along these lines.”
In an interview with German financial daily Handelsblatt published on Friday, Draghi urged politicians to implement necessary reforms, reduce tax burdens and cut red tape to support a fragile Eurozone recovery.
He also said the risk of the central bank not fulfilling its price stability mandate was higher now than half a year ago, and reiterated its readiness to act soon if needed, with government bond purchases among the tools it could use.
With the Eurozone flirting with deflation, financial markets interpreted Draghi’s comments on Friday as strongly suggesting the ECB would soon embark on outright money-printing, and the euro sank to a 4-1/2 year low against the dollar.
Printing money to buy government bonds, a measure known as quantitative easing (QE), is seen as one of the last tools the ECB has to revive inflation. The bank has already pushed its key interest rate down to a record low of 0.05 percent and doubts are growing about the impact of earlier measures.
“I expect there to be fierce discussion over this at the next ECB meeting,” said Fuchs, referring to opposition to the bond-buying plan by the head of the Bundesbank Jens Weidmann. The ECB’s next policy meeting is on Jan. 22.
Fuchs has frequently expressed frustration felt by many German politicians and the public about the pace of reform in twice-bailed-out Greece.