German "wisemen" say ECB policy carries risks

[BERLIN] The German government's panel of independent economic advisers criticised the European Central Bank's asset-buying programme on Wednesday and urged it to avoid a major increase in its balance sheet until clearer signs of deflation emerged.

In its annual report, the panel known as the "wisemen", although it now includes one woman, also cut its forecast for 2014 growth to 1.2 per cent from a previous 1.9 per cent due to crises abroad and unfavourable developments in Europe. It forecast growth of 1.0 per cent for next year.

The ECB's cuts to the benchmark interest rate to combat falling inflation and its bond-buying programme carried dangers for the eurozone economy, the panel said. "On the one hand the financial sector is led into taking greater risks because of low interest rates, and on the other hand, due to the bond buying, the ECB could encourage governments to ease off on their reform and consolidation efforts."

REUTERS