Germany warns over risks of QE

German Finance Minister Wolfgang Schäuble

The ECB’s bond-buying decision risks deterring eurozone governments from taking steps to restore their countries’ competitiveness, German Finance Minister Wolfgang Schäuble has said.

“The only problem we see is the moral hazard,” Schäuble said on a World Economic Forum panel in Davos, Switzerland.

“Some people could misunderstand that they don’t have to do what they have to do as governments, as parliaments, and so on. Because to implement structural reform is always a difficult political task.”

ECB president Mario Draghi said on Thursday that the bank will buy €60bn of debt a month through September 2016.

That will probably comprise about €45bn in investment-grade sovereign bonds, €5bn in the debt of eurozone public agencies and €10bn under existing programmes to buy asset-backed securities and covered bonds.

Schäuble’s comments echo concerns voiced by German Chancellor Angela Merkel and Bundesbank president Jens Weidmann, who has called quantitative easing “sweet poison” for governments and criticised the ECB decision.

Draghi told reporters it is “crucial that structural reforms be implemented swiftly, credibly, and effectively” to complement the bank’s move.

Schäuble said the ECB is doing a good job at maintaining price stability as it faces a risk of deflation, though he said the German media’s response to the decision was “difficult”.

Italy’s “impressive” economic reforms show what needs to be done alongside the ECB’s bond-buying plan, which can’t replace government action, Merkel said .

“The countries of the eurozone need to use this opportunity now to do the structural reforms, to get their public finances in order, to make the changes that are going to attract business and investment from around the world to Europe,” UK chancellor of the exchequer George Osborne said.

IMF managing director Christine Lagarde said it is essential that monetary policy is supported by “comprehensive and timely policy actions in other areas”, not least “structural reforms to boost potential growth and ensure broad political support for demand management policies”.

The European Commission has updated the way it enforces budget rules to help countries boost investment and make long-term economic changes, measures that could help Italy and France pass their next round of deadlines.

France and Italy have until March to convince the commission their 2015 budget plans are in line with EU spending rules.


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