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The asset purchases program of European Central Bank (ECB) supported the economic growth, but failed to raise inflation in the Eurozone and may increase risks to financial stability in the region, according to German central bank Bundesbank.

The findings in the report actually support the long-standing views of the central bank of Germany that monthly purchases of bonds are not necessary and should be discontinued without any delay, thereby putting an end to the largest unusual Stimulating monetary policy conducted by the ECB.

The analyze also emerges from the analysis that, given the high monetary liquidity provided by the ECB, the Eurozone commercial banks are reducing the write-off of the so-called “bad loans” and again participate in more risky lending, which ultimately leads to higher risks to financial stability.

“We find that the ECB’s policy regarding its financial balance, which is in the form of direct asset purchases, has lowered the financial strain for some time after the shock years ago. This positive effect, however, turned afterwards, as the stress rises above its levels before the shock”, says also the report of Bundesbank.

In view of the fact that the Eurobond purchase program expires at the end of the year, ECB members will have to discuss this autumn about whether to prolong asset purchases by 2018, or to start phasing out the “quantitative easing”.

Indeed, the Bundesbank has long argued that the asset purchase program not only circumvents the rules prohibiting central banks from financing Eurozone member state budgets but at the same time distorting the financial markets potentially leading to inflation of the asset price bubble, to make a significant contribution to rising inflation.

