German Central Bank Chief Warns Against Further Bond Buying By The ECB

Comparing the wave of ECB bond buying to drug addiction, the head of the German Central Bank, Jens Weidmann warned that the addiction to printing money instead of implementing strict reforms can lead to complacency among indebted nations that will ultimately result in further deterring them from actually implementing significant reforms the avert the need the rely on ECB money printing. As has often been argued by bloggers and writers, the primary factor in dealing with the debt crisis plaguing the European Union at the moment is that the indebted members are not implementing enough in the way of fiscal reforms such as cuts in government spending, social services and pushing through fiscal overhauls that would help avert similar situations down the road. The idea of printing more money is simply a mechanism by which indebted nations simply continue to kick the can down the road instead of dealing with the issues that got them into this mess in the first place.

"Such a policy is for me close to state financing via the printing press," Weidmann told Der Spiegel magazine. "We should not underestimate the risk that central bank financing can become addictive like a drug." (The Guardian)

These comments come as Spain approaches their announcement of details regarding its recent €100bn bailout in which it accepted cheap money from Brussels to underwrite the crumbling banking sector in Spain. However notwithstanding that bailout there is still a real fear that Spain is on the verge of collapse and like Greece, will eventually need additional bailout funding.

It seems too that the situation in Greece is also changing somewhat in the sense that it is asking now for members of the European Union to relax the terms of its previously received bailout loans. Greece is asking for a 2 year extension to their re-payment terms on the basis that their economy is not expanding the way it thought it would (which is really no surprise to anyone following the situation) and is arguing that without the extension there is a real risk of continuing political and social unrest which would inhibit their ability to impose fiscal reforms. My argument against what Greece is asking for is that they have had the better part of two years to push through fiscal reform but instead of doing so have relied heavily on the bailout mechanisms put in place. In other words, they have been lazy and quite simply irresponsible in that regard which lends further weight to the argument put forth by the German Central Bank chief.

Given the way things have been handled in Europe, it would not come as any surprise to us on the outside that they will inevitably get their extension but if I were to make a wager it would be that they will require additional leeway in that regard in two years time and perhaps even require additional money before re-payment even begins.

And so, here we go again. Further bailouts, then the re-negotiation of the terms of such deals and the need for more money is again starting to permeate the headlines in Europe. The fact of the matter is that Greece for example, will never be able to get out of its debt problem and makes it even more clear that they should have just walked away from the debt and officially defaulted like Argentina and Russia did years ago (and who have both regained financial stability). This entire game called money printing is simply creating a bigger problem and as argued by Jen Weidmann is really like a drug addict continuing to hunt down drugs instead of addressing the addiction.