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German Savings Banks Warn ECB of Damaging ‘Stability Culture’

Aug. 2 (Bloomberg) -- German savings banks warned the European Central Bank against damaging the “stability culture” of the euro by sticking to low interest-rate policies and flooding the markets with liquidity.

“The current ECB policy of keeping interest rates at a record low, buying more sovereign debt and flooding the markets with liquidity reduces the value of savings and, with that, people’s provisions for old age throughout Europe,” Georg Fahrenschon, the president of the Berlin-based DSGV banking group, said in a statement today. “The ECB is on the verge of moving further away from the stability culture of the Bundesbank.”

While non-standard measures are needed to fight the debt crisis, pumping increasing amounts of liquidity doesn’t tackle overindebtedness, which is the root cause of the crisis, Fahrenschon said.

“The ECB shouldn’t forget that fighting fire with fire leaves a lot of scorched earth behind,” he said.

To contact the reporter on this story: Annette Weisbach in Frankfurt at aweisbach1@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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