The European Central Bank has burdened itself with considerable risks and these should be unwound, Bundesbank President Jens Weidmann said on Tuesday, in a thinly veiled attack on the ECB's bond-buy plan.
In his first speech since news broke on Friday that another German ECB policymaker, Juergen Stark, is resigning in protest at the bond-buying plan, Weidmann also criticised politicians' response to the debt crisis and said worries about the euro are increasing in Germany and other parts of the euro zone.
Weidmann and Stark both opposed the ECB's decision last month to reactivate the bond plan following a 19-week pause. The bank decided to buy the bonds of Italy and Spain after they came closer to succumbing to the debt crisis.
Central banks have taken on some of the load of fiscal policy for the support of individual countries or banks that have fallen into trouble, Weidmann said in a speech to the Family Business Association in Cologne.
Because of this, the Eurosystem books are now burdened with considerable risks, he said, referring to the Eurosystem of central banks, comprising of the ECB and the 17 national central banks in the common currency bloc.
I am of the firm view that these should henceforth be unwound and definitely not increased. It is high time that fiscal policy(makers) decide which risks they want to take on to fight the crisis but also in the long run. This is not the role of monetary policy(makers).
He declined to comment further when approached by reporters after delivering the speech.
The ECB has purchased 143 billion euros worth of sovereign bonds from crisis-ridden countries, risking taking a hit should they default. It is also offering banks unlimited amounts of cash in its liquidity operations against collateral.
Weidmann is widely seen as the one German policymaker at the ECB who will promote Germany's traditional orthodox monetary policy after the bank said on Friday Executive Board member Stark would resign.
Weidmann sought to reassure his audience that he would uphold those Bundesbank-style values:
In the tradition of the Bundesbank, I regard remaining to true to the principles of monetary policy as particularly important, and this applies all the more in a currency union, he said. This is not about dogmatism.
Stark decided to resign early in what sources said was a protest against the ECB's policy of buying bonds to help countries embroiled in the debt crisis. He will quit the bank this year, well before the end of his term in mid-2014.
Weidmann replaced Axel Weber who resigned as Bundesbank chief earlier this year -- a move also triggered by his opposition to the bond programme.
The plan is seen by many in Germany as taking the ECB into the fiscal arena and threatening its core role of fighting inflation. Weber's opposition to the programme ultimately led to his resignation and Germany's president has even questioned the legality of the plan.
The ECB only decided to reactivate its bond programme last month after writing to Italy, laying out demands for action on consolidating the budget, although the exact terms of what it required have not been revealed.
It also resumed its bond buys on the understanding that a July euro zone deal meant the European Financial Stability Facility (EFSF) -- the bloc's rescue fund -- could take over the bond buys after just a couple of months.
Weidmann dismissed the idea of the EFSF, or the European Stability Mechanism (ESM) that will replace it in mid-2013, buying bonds.
Incentives for appropriate fiscal policy will be further weakened by the planned secondary market purchases (of bonds), he said.
Weidmann repeated his opposition to euro zone countries jointly issuing bonds, saying the risks vastly outweighed any potential gains.
He also took aim at government's inability to solve the euro zone debt crisis, which he said had eroded many people's trust in the authorities, and in the crisis policy response.
People, not only in Germany, are worried about their currency. I take these worries seriously, he said.