According to Bundesbank President Joachim Nagel, the European Central Bank should be cautious when it comes to new measures to limit the borrowing costs of weaker member countries of the monetary union - and only use them under strict conditions anyway.
Nagel spoke for the first time publicly about the central bank's planned instrument against the so-called fragmentation of the euro zone.
"It is only in exceptional situations and under narrow conditions that unusual monetary policy measures against fragmentation can be justified," said Nagel in a speech at the Frankfurt Euro Finance Summit.
Only a "clearly defined instrument" can be used.
Determining with certainty whether a spread widening is fundamentally justified is "nearly impossible," according to Nagel.
"Here you quickly find yourself in dangerous waters."
In the run-up to the ECB's first interest rate hike in more than a decade, markets fear a repeat of the European debt crisis.
An emergency meeting of the ECB Council and the decision on a new instrument came under the impression of a massive sell-off in Italian government bonds.
At the Euro Finance Summit, ECB Vice President Luis de Guindos outlined a test that could indicate that the risk premiums demanded by the market are excessive.
"For two equally solid companies in the euro area, a change in monetary policy stance should result in a similar reaction in their funding conditions, regardless of which country they are based in," he said, adding: "If that's not the case, we will." respond to prevent fragmentation with appropriate safeguards to avoid moral hazard.”
Nagel's criticism of the plans is the most far-reaching that has been publicly expressed.
He warned that central banks "must not be driven by what are often very short-lived developments in the financial markets".
The German currency watchdog gave three reasons that had to be “understandable” in order to justify the instrument: First, the interest rate differentials at the level observed were not fundamentally justified.
That is, they are the result of exaggerations on the financial markets.
Second, the monetary policy signals are not getting through to individual member states as intended.
This means that the transmission mechanism is impaired.
And thirdly, the ability of the Eurosystem to ensure price stability for the euro area is restricted as a result.
Nagel also insists that the instrument should be "tightly time-limited".
He added that, in principle, the existing Outright Monetary Transactions (OMT) decision, created under former ECB President Mario Draghi, could also be used.