July 12, 2014 / 2:00 PM / 4 years ago

UPDATE 2-ECB interest rates too low for Germany, says Bundesbank chief

* German central bank head urges policy tightening as soon as possible

* ECB pledge on unconventional policy is unanimous, Draghi said last week (Adds Weidmann urging governments to act)

By Paul Carrel

FRANKFURT, July 12 (Reuters) - The European Central Bank should tighten policy as soon as it can and its interest rates are too low for Germany, Bundesbank chief Jens Weidmann said, pointing to tensions in the united front the bank has presented since a major policy shift in June.

Speaking on Saturday at a Bundesbank open day for the public, Weidmann noted that many savers in Germany were irritated by low interest rates but said these were aimed at supporting investment and consumption.

The ECB cut interest rates to record lows last month as part of a package of measures to breathe life into a sluggish euro zone economy, where inflation is running far below the central bank’s target and there is a dearth of credit to smaller firms.

The bank’s president, Mario Draghi, told his monthly news conference last week that the bank’s Governing Council - of which Weidmann is a member - was “unanimous in its commitment to also using unconventional instruments within its mandate, should it become necessary.”

The German economy, Europe’s largest, has been outperforming other countries in the bloc, however. If the Bundesbank were autonomous, Germany would benefit from a tighter rather than a looser monetary policy, Weidmann said.

“It is clear that monetary policy, when seen from a German viewpoint, is too expansive for Germany, too loose,” Weidmann told a crowd at the start of the open day. “If we pursued our own monetary policy, which we don‘t, it would look different.”

“But we are in a currency union,” he said. “That means that, in our monetary policy decisions, we must orientate ourselves to the whole currency union.”

Repeating a warning he has made previously about the risks of leaving policy loose for too long, Weidmann added: “This phase of low interest rates, this phase of expansive monetary policy, should not last longer than is absolutely necessary.”

At the monthly news conference, Draghi said risks to the euro zone economic recovery remained primarily negative.

Draghi also left the door open to a possible asset-buying programme by the ECB, which both Weidmann and his ECB Executive Board colleague and fellow German Sabine Lautenschlaeger have cautioned against in all but exceptional circumstances.

Weidmann put the onus on governments to act, urging them to shape up their economies and consolidate their budgets as the euro zone recovers from the debt crisis that took it to the brink of break-up.

“Governments have the key to overcoming the crisis in their hands,” he said. “The crisis has not been overcome yet.”

Writing by Paul Carrel; Editing by John Stonestreet and Sophie Walker

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