Bundesbank denies it will allow German inflation to rise

It took Germany's central bank less than a day to knock a reported proposal by the ECB to set interest rates caps on Spanish and Italian bond yields. Bloomberg reports Bundesbank Widens Euro Rift With Criticism of ECB Bond Plan. Germany’s Bundesbank stepped up its criticism of the European Central Bank’s plan to embark on potentially “unlimited” government bond purchases, widening a rift over how to tackle the sovereign debt crisis.

The European Central Bank is prepared to cut off funding to Cyprus and let the Mediterranean island succumb to financial meltdown if it has to, confident it has unlimited firepower to protect the rest of the eurozone. Cyprus propelled the 17-nation bloc into uncharted waters on Tuesday by rejecting a proposed levy on bank deposits as a condition of a 10-billion euro (US$12.9-billion) EU bailout. Without the aid, much of it to recapitalize Cypriot banks, the ECB says they will be insolvent, and it requires banks to be solvent for them to receive central bank support.

Bundesbank president Jens Weidmann warned French president-elect Francois Hollande on Saturday against tampering with the European Central Bank or the EU fiscal pact.Speaking in an interview with the daily Sueddeutsche Zeitung, he also reminded Greece it would have to respect its commitments or risk having its bailout aid suspended.