Bundesbank's Nagel says ECB bazooka no solution to crisis

BERLIN: Monetary policy is not the solution to the euro zone debt crisis and unlimited bond buying is incompatible with the European Central Bank's official mandate, Bundesbank board member Joachim Nagel was quoted saying by daily Die Welt on Tuesday.

Asked if the ECB should get out its "bazooka" and start buying unlimited amounts of sovereign bonds, Nagel said: "Markets like to see the cheque on the table. But if the ECB was misled to do so, the markets would celebrate briefly and then straightaway ask much more uncomfortable questions."

"They would worry this solution would overwhelm Germany. They would doubt the credibility of the ECB. And they would point towards the big risks of such a policy," he said.

Last week, Bundesbank head and ECB policymaker Jens Weidmann delivered a blow to hopes of more decisive ECB intervention to quell the euro zone crisis, saying his peers at the bank were growing sceptical of its bond-buying programme, which he openly opposes.

Weidmann was witheringly critical of appeals for the ECB to do more to help debt-choked governments, comparing them to alcoholics pleading to be given a bottle.

Nagel echoed Weidmann's opposition to a one-shot solution to the crisis, saying: "The bazooka solution is a damp squid."

The ECB has come under pressure from the United States and Britain in recent weeks to do more to fight the euro zone crisis, and some politicians in the 17-country bloc want it to act as a lender of last resort to governments.

"Such purchases are not compatible with our mandate," Nagel told Die Welt. "It is crazy how we are being called upon seemingly as a matter of course to act beyond our legal mandate."

"Monetary policy is not the solution to the crisis," he said. "The central bank has a clear mandate, and that is price stability. It should not move into a role that sets false incentives for states."

Weidmann's predecessor, Axel Weber, resigned this year in protest at the ECB's bond buying programme, which he felt took it beyond its core inflation-fighting role and too close to fiscal policy.

Nagel said only politics could solve the crisis, and it would take a while. "The crisis will not be over in 2012, but this arduous path is the only one," he said.

He welcomed the decision at the European Union summit earlier this month to move towards greater fiscal union.

"This is exactly the path the Bundesbank always wanted," he said.