Merkel claims central banks' policies unsafe

In an unprecedented attack on the world's central banks, the German Chancellor, Angela Merkel, has called on them to end their "unconventional" monetary polices - expanding money supply though purchases of government and private sector bonds.

Merkel suggested that the central banks may do more harm than good. "What other central banks have been doing must stop now. I am very sceptical about the extent of the Fed's actions and the way the Bank of England has carved its own little line in Europe," she said in Berlin.

She said she views "with great scepticism what authority the Fed has and the leeway the Bank of England has created for itself".

The attack on the US Federal Reserve and the Bank of England shocked many observers. More radical still was the assault on the European Central Bank.

Ever since the foundation of the Federal Republic 60 years ago, no German leader has publicly rebuked the Bundesbank or its successor, the European Central bank.

Freedom from political interference has been a cornerstone of economic policy for decades, yet Merkel was unabashed: "Even the European Central Bank has somewhat bowed to international pressure with its purchase of covered bonds. We must return to independent and sensible monetary policies, otherwise we will be back to where we are now in 10 years' time."

Tomorrow the ECB is expected to unveil details of its programme to buy covered bonds, securities "covered" by a dependable source of income and collateral behind them. It is the ECB's version of the more extensive "quantitative easing" pursued in recent months by the Bank of England and the US Fed.

The German Chancellor's attack comes at a time when voices in the City are questioning the effectiveness of the Bank of England's policy.

Analysts claim that a "disappointing" increase in the money supply will add to pressures on the Bank of England to step up its programme of "quantitative easing".

The Bank's Monetary Policy Committee is expected to announce its latest decision today.

Figures released by the Bank of England showed that the benchmark M4 figure is still sluggish.

Money supply rose at an annual rate of 17.4 per cent in the year to April, but lending to households grew by a mere 0.2 per cent on the month, or 3.4 per cent on the year.

To non-financial companies, lending fell by 0.9 per cent in April, and was up by just 0.8 per cent on 2008, itself a depressed figure.

- INDEPENDENT