BERLIN (Reuters) - "Helicopter money", or free cash dished out to citizens in a bid to stimulate spending and inflation, would end up costing euro zone states and therefore also cost taxpayers, the head of Germany's central bank said in an interview with a group of regional German newspapers.
After years of increasingly desperate attempts to kick-start growth, some bankers and finance officials fear monetary policy is running out of effective ammunition and future stimulus efforts could even be harmful. Economists say "helicopter money" would be a last resort.
"Helicopter money is not manna that falls from heaven - it would actually rip huge holes in central bank balance sheets," Bundesbank President Jens Weidmann told German media group Funke's newspapers.
"Ultimately euro zone states and therefore taxpayers would end up having to bear the costs because there wouldn't be central bank profits for a long time," said Weidmann, who is also on the European Central Bank's (ECB) decision-making Governing Council.
Weidmann said the decision of whether to give money to citizens and how to do it was highly politicized and should be handled by governments and parliaments.
Central banks do not have a mandate for that, partly because it would lead to massive redistribution, he added.
"That would be nothing other than completely mixing monetary policy and fiscal policy and would not be compatible with central bank independence," he said.
Monetary policy is not a panacea or a substitute for necessary reforms in individual countries and does not solve Europe's growth problems, Weidmann added.
On the ECB's decision last week to cut its main interest rate to zero, Weidmann said: "I have repeatedly pointed out that the effect of ultra-loose monetary policy gets weaker the longer it lasts. At the same time it's true that the more you accelerate, the bigger the risks and side effects become."
