Germany's Central Bank reluctant to ECB bond buying

Germany's Bundesbank showed no signs of lowering its resistance to a European Central Bank plan to buy billions of euros worth of Spanish and Italian government bonds to reduce those countries' crippling borrowing costs.

The powerful Bundesbank, the central bank of Europe's largest economy, is keeping up its opposition even after Germany's political leaders voiced some support for the ECB's crisis-fighting strategy.

The bank objects to ECB President Mario Draghi's plan to resume buying bonds on the grounds that this amounts to monetary financing of governments, contravening European law.

"The Bundesbank remains critical of the purchase of euro system sovereign bonds, which comes with considerable risks for stability," the Bundesbank wrote in its monthly report.

"Decisions about a possible broader mutualisation of solvency risks should be... with the governments and parliaments, and should not occur via central bank balances."

Draghi indicated earlier this month the ECB could intervene in debt markets but he held back from announcing concrete steps.

The Bundesbank retains substantial influence within Germany and across financial markets due to its inflation fighting credentials, but it is unlikely it could scupper Draghi's plan, given the German central bank is only one of 17 constituents at the ECB.

Likewise, senior German politicians stepped up the pressure on Greece to stick to its reforms before the Greek prime minister visits Berlin this week and made clear that there was no appetite in the German parliament for a third aid package.

Greek leader Antonis Samaras, facing mounting social and political discontent at home, is expected to ask for a two-year extension to the deadline international lenders have set when he meets the leaders of Germany and France this week.

Greece, in its fifth year of recession, has fallen behind on its targets and will probably need to make US$17 billion in cuts rather than a previously expected 11.5 billion over the next two years to meet terms for international aid, according to Germany's Der Spiegel magazine.

But more than two years after Greece won its first bailout, patience is wearing thin in Germany, Greece's biggest lender, where Samaras meets Chancellor Angela Merkel on Friday.

"It is not responsible to throw money into a bottomless pit," Finance Minister Wolfgang Schaeuble said at a government open day in Berlin.

Norbert Barthle and Michael Meister, both senior politicians in Merkel's Christian Democrat party (CDU), told Tagesspiegel's Monday edition that there would be no third aid package for Greece while Volker Kauder, head of the conservatives in parliament, said Greece must stick to what it had agreed.

Kauder told Spiegel that Athens, which has not achieved the budget cuts and privatizations it promised in March to secure a second, 130-billion euro bailout, must honor its agreements.

"There is no room for maneuver there, neither in terms of the time frame nor in terms of the substance because that would be another breach of the agreements," he was quoted as saying.

Kauder added that he saw little chance of a third aid package for Greece finding support in Germany's ruling coalition even though Greek insolvency would cost Germany dear: "There cannot always be new programs or moderated conditions. The Greeks must at some point answer the question: Are we going to make an effort or are we going to leave the euro?"