Germany’s Weidmann Says ECB Can’t Bail Out Governments by Printing Money

By Jeff Black and Gabi Thesing
Bloomberg
Nov. 09, 2011

European Central Bank council member Jens Weidmann said the ECB cannot bail out governments by printing money.

“One of the severest forms of monetary policy being roped in for fiscal purposes is monetary financing, in colloquial terms also known as the financing of public debt via the money printing press,” Weidmann, who heads Germany’s Bundesbank, said in a speech in Berlin today. The prohibition of monetary financing in the euro area “is one of the most important achievements in central banking” and “specifically for Germany, it is also a key lesson from the experience of hyperinflation after World War I,” he said.

The ECB is under pressure to ramp up its bond purchases to cap soaring yields in Italy as governments fail to contain the two-year-old sovereign debt crisis. Weidmann also rejected proposals to use Bundesbank currency and gold reserves to help finance purchases by a special fund, saying this is another form of monetary financing.

Such a course “undermines the incentives for sound public finances, creates appetite for ever more of that sweet poison and harms the credibility of the central bank in its quest for price stability,” Weidmann said.

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