German and French governments recently laid out further reforms of the euro zone which some say could eventually move it toward some form fiscal union, but there is substantial opposition in Germany to steps that would lead to it taking responsibility for other countries’ debts.

Individual countries should primarily deal themselves with the fallout from soft fiscal policy rather than the consequences being split among the bloc or dealt with in a transfer union, where some countries finances others, the Bundesbank said.

And yet the July 21 agreements went in exactly this direction, said the German central bank, which has been a vocal opponent of some of the support given to ailing euro zone governments.

“The latest agreements result in a further big step toward joint liability and reduced disciplining via the capital markets,” it said in its August monthly report.

The agreements reduced incentives for those countries under euro zone aid programs to pursue economic reforms as quickly as possible to put their public finances on a stable footing again, the Bundesbank added.

“The incentives for appropriate fiscal policy are also further reduced by secondary market (bond) purchases,” it added.

Bundesbank President Jens Weidmann was one of four members of the European Central Bank’s policymaking Governing Council who opposed the reactivation of the ECB’s bond-buying program earlier this month.

Despite the protests from the Bundesbank, the ECB reactivated the bond program after a G7 conference call and expanded it to purchase sovereign debt issued by Italy and Spain, which markets were pushing to destruction.

Under the July 21 deal, the euro zone’s rescue fund, the European Financial Stability Facility, will also be allowed to buy bonds in the secondary market if the ECB deems that necessary to fight the crisis.

This should see future such bond purchases shifted over to the rescue fund and away from the ECB.

The July agreements also included private sector involvement (PSI) in a second aid package for Greece. However, the Bundesbank said PSI would be limited.

“It is probably to be expected that the contribution of private creditors in the framework of the whole package will remain very limited,” the German central bank said, noting that “a good deal” of Greece’s sovereign debt is already in public sector hands.

Turning to Germany, the Bundesbank stuck to its forecast for growth of around 3 percent this year, despite the economy expanding by just 0.1 percent in the second quarter.

“The low growth in the second quarter is in itself not evidence that the German economy has so far suffered markedly from the weakening of foreign demand and the uncertainty that has recently increased with regard to the situation on financial markets in connection with the debt problems in the euro zone and the US,” it said.

“However, there are appreciable risks concerning this.”