BERLIN—The European Central Bank slowed down its purchases of government bonds last week, allowing Italy's borrowing rates to spiral to dangerous highs, a clear indication it resists being Europe's safety net against the debt market turmoil.
The ECB said Monday it bought bonds worth euro4.5 billion ($6.2 billion), down from euro9.5 billion a week earlier.
The purchases are aimed at keeping a lid on borrowing rates faced by Italy and other member states of the 17-nation eurozone nations so they don't get frozen out of financial markets like Greece.
The slowdown in the weekly purchases coincided with rising yields on Italian bonds amid concerns over the country's huge debt of about euro1.9 trillion, or almost 120 percent of its economic output.
"The ECB continues its role of euro crisis fire brigade but only at half speed," said economist Carsten Brzeski of
Silvio Berlusconi's resignation as premier over the weekend drove down the yield on benchmark 10-year bonds, but it was still at an uncomfortably high 6.7 percent on Monday, not far from the 7 percent level that eventually forced three other eurozone countries to seek bailouts
Italy's difficult position was highlighted in a debt auction, in which it raised euro3 billion ($4.1 billion) in five-year bonds at an interest rate of 6.29 percent, the highest level since 1997.
The ECB under its new head Mario Draghi has appeared reluctant to step up its bond purchasing program, saying the measure is limited and temporary, but it remains the only backstop the eurozone has until its new bailout fund will be fully beefed up.
At their October summit, the currency union's leaders promised to increase the firepower of their bailout fund, the European Financial Stability Facility, to around euro1 trillion to make it a more powerful weapon in the fight against contagion. How, and if, that will happen, however, is still unclear.
While European leaders are trying to hammer out the details to set up the new mechanism, there is strong resistance within the ECB's governing council to continue or expand its role as the eurozone's firefighter.
The head of Germany's central bank on Monday rejected a broader role for the ECB in supporting indebted governments, saying it would endanger the bank's credibility as an inflation fighter.
The central bank "cannot and should not solve the financial problems of states and banks," Bundesbank President Jens Weidmann said in a speech in Frankfurt. "These decisions must be made by national parliaments," he maintained.
Weidmann said relying on the ECB for help would only take the pressure off governments to reduce debt on their own.
"With every setback in the efforts of political leaders to find a solution to the crisis the pressure has risen on monetary policy, as allegedly the only actor able to effectively intervene," Weidmann said.
Some economists have advocated creating new money to buy large amounts of bonds as a way to reassure investors that Italy can repay its debts. Theoretically, the bank's ability to print money gives it unlimited financial firepower. But creating new money can lead to rising inflation, whereas the ECB's main mandate is to keep it low.
"If monetary policy stretches its mandate to guarantee price stability or even violates the ban on monetary financing of governments, there is nothing less at stake than its credibility, which it has earned with its efforts for price stability over decades," Weidmann said.
Gabriele Steinhauser in Brussels and David McHugh in Frankfurt contributed to this report.