Germanyâ€™s Bundesbank stepped up its criticism of the European Central Bankâ€™s plan to embark on potentially â€œunlimitedâ€ government bond purchases, widening a rift over how to tackle the sovereign debt crisis.
â€œThe Bundesbank holds to the opinion that government bond purchases by the Eurosystem are to be seen critically and entail significant stability risks,â€ the Frankfurt-based central bank said in its monthly report today. The new program â€œcould be unlimitedâ€ and decisions about potentially far greater sharing of solvency risks should be taken by governments or parliaments, not by central banks, it said.
The comments suggest Bundesbank President Jens Weidmann wonâ€™t support a measure the ECB is rushing to design to help reduce governmentsâ€™ borrowing costs and win them time to implement fiscal reforms. Spanish and Italian 10-year bond yields slid to the lowest in more than six weeks today after German news magazine Der Spiegel reported the ECBâ€™s new program may set yield caps. In response, the ECB issued a statement saying itâ€™s â€œmisleading to report on decisions which have not yet been taken.â€
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