ECB asset-buying blurs line between fiscal and monetary policy: Weidmann

LISBON (Reuters) - The European Central Bank's 1.5 trillion euro asset buying programme blurs the line between fiscal and monetary policy, reducing the incentive for governments to rein in spending, Bundesbank President Jens Weidmann said on Thursday.

Weidmann, who also sits on the European Central Bank's rate setting Governing Council, has been among the ECB's top critics, arguing that its policy is already loose enough, leaving the euro area prone to asset bubbles and financial instability.

The bank cut its deposit rate deeper into negative territory last week and extended the purchases of mostly sovereign bonds by six months to boost the euro area's stubbornly low inflation back towards 2 percent from around zero.

"For me, the purchase of sovereign debt is not an instrument like any other, because it leads to a certain blurring of the lines between monetary, fiscal policies, and also might lead to the perception of some finance ministers that it is not necessary to consolidate the budget promptly."

The ECB is buying assets on the secondary market to boost inflation, lowering yields and effectively making it cheaper for governments to borrow.

"We are not acting with our toolbox of conventional instruments, but rather with an instrument that I consider more problematic in a monetary union," said Weidmann, who opposed last week's policy easing.

The ECB has rejected claims that its asset buys are a form of financing governments, a practice that would not be allowed, and said the aim is to generate inflation and growth.

(Reporting by Sergio Goncalves and Shrikesh Laxmidas; Writing by Balazs Koranyi; Editing by Toby Chopra)

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