Would you lend taxpayer money to Volkswagen AG, the disgraced auto maker that’s worth 35% less than it was a year ago? How about providing financial succor to Telecom Italia, which both Moody’s Investors Service and S&P Global Ratings regard as a junk borrower unworthy of investment grade status?

Those are just some of the unintended consequences of the European Central Bank’s renewed efforts to resuscitate the euro zone economy by expanding its quantitative easing programme to include corporate securities.

Last week, it effectively loaned state cash to both the Germany car maker and the Italian telecom company by including their bonds on its shopping list of securities purchases. No wonder, the legitimacy of the central bank’s decision to enlarge its mission is being challenged in the German courts.

The ECB’s enlarged bond-buying exercise is nothing if not awkward. The central bank maintains it is merely using another tool in its monetary policy box. But the unpalatable truth is that widening the bond-buying programme beyond government debt is evidence of policy failure, not success.

Even though the buying has driven government borrowing costs to record lows—Germany’s 10-year yield touched 0.02% on Friday, as close to zero as makes no difference—there’s little prospect of inflation returning to the bank’s 2% target rate anytime soon.

The euro zone’s problem isn’t a lack of supply of cheap money, it’s a lack of demand for investment capital. Moreover, European companies don’t need the ECB’s help to drive down their borrowing costs; bond yields were already near rock-bottom levels by the time Mario Draghi announced he was extending the range of his QE (quantitative easing) purchases.

The ECB isn’t lending to Volkswagen because the car maker needs its money. The central bank hopes that the cash allocated to its bond-buying programme will somehow make its way into the real economy and stave off the threat of deflation.

But it’s buying corporate debt because it risks running out of sufficient qualifying government bonds to maintain its promised QE pace of expanding its balance sheet by an additional €80 billion ($90 billion) every month.

For two consecutive months, the ECB has spent less on Portuguese and Irish bonds than its own rules say it should. Analysts are interpreting that parsimony as a signal that the central bankers are concerned there aren’t enough government bonds to last the full course of the programme, which is scheduled to expire in March 2017.

It’s almost four years since Draghi’s pledge to do “whatever it takes" to save the euro fended off what was becoming an existential crisis for the common-currency project. His repeated calls for euro zone governments to add fiscal firepower to his efforts to resuscitate the economy continue to fall on deaf ears. Monetary policy is still the only defence the euro region has against the dangers of deflation.

When taxpayer money is being invested in a junk-rated company like Telecom Italia, it’s pretty clear that monetary policy is close to exhaustion in terms of what it can deliver for the economy. Last week’s expansion of the ECB’s QE programme is cause for concern, not celebration. BLOOMBERG

Mark Gilbert is a Bloomberg View columnist and a member of the Bloomberg View editorial board.

Comments are welcome at otherviews@livemint.com

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