The European Central Bank's plans to buy rebundled packages of debt have drawn sharp criticism from officials in Germany, including the head of the Bundesbank, the ECB's former chief economist and allies of chancellor Angela Merkel.
On Thursday, the ECB laid out plans to buy reparcelled debt and covered bonds, secured on solid assets such as property. It will include buying debt with a "junk" credit rating from Greece and Cyprus as long as such countries are under a formal international financial programme.
Bundesbank chief Jens Weidmann warned in German magazine Focus yesterday that there was a danger the ECB would buy "low-quality loan securitisations" at inflated prices as part of its programme to buy so-called asset-backed securities (ABS).
ABS are created by banks pooling mortgages and corporate, auto or credit card loans and selling them to insurers, pension funds or now the ECB.
“Then the credit risks taken by private banks would be transferred to the central bank and therefore taxpayers without them getting anything in return,” said Mr Weidmann, who is also an ECB policymaker.
“But that goes against the basic principle of liability that is fundamental to a market economy: Those who derive benefit from something should bear the loss if there are negative developments,” he was quoted as saying.
Mr Weidmann said the global financial crisis had shown how dangerous it could be to abandon this principle.
He also warned against devaluing the euro.
– (Reuters)
