ECB’s Villeroy Voices QE Dissent, Says It’s Not Needed Now

(Bloomberg) --

The depth of divisions at the European Central Bank was thrown into sharper relief on Tuesday as Francois Villeroy de Galhau admitted he opposed the decision to restart quantitative easing.

In his first comments on the public spat surrounding the ECB’s fresh stimulus package, Villeroy showed he was in the hawkish camp of policy makers on the Governing Council that also includes his colleagues from Germany and the Netherlands.

Restarting quantitative easing is unwarranted, the Frenchman said, when long term borrowing costs are already at very low levels. The ECB also cut interest rates and changed its forward guidance, which Villeroy said were a “powerful combination” by themselves.

Still, he refused to be categorized as a hawk or a dove and hinted that if the situation worsens, he will reassess.

I was “not in favor of the resumption of net asset purchases at this time, because I thought that further purchases are unnecessary right now -- and I stress right now -- given the very low levels of both long-term interest rates and term premia,” he said in Paris.

Villeroy’s intervention comes a day after ECB President Mario Draghi warned in the European parliament that a spate of public dissent by policy makers could weaken the impact of the latest monetary stimulus. It could also make it hard for Christine Lagarde, who takes over the institution in November, to rally support among her colleague if more radical measures turn out to be needed.

Read More: Draghi defends ECB stimulus with veiled criticism of opponents

“Whatever the debate in the Governing Council has been, let us now look forward and stress one simple message that has unanimous agreement: monetary policy has, once more, done its duty,” he said.

The remarks from Villeroy, who was among top contenders to replace Draghi, follow more evidence that the outlook for the euro area is getting bleak. Germany’s economy is suffering its worst downturn in almost seven years as a manufacturing slump deepens.

Governing Council member Peter Kazimir said Tuesday that recent economic numbers have changed “nothing” as the ECB package provides room “to buy us time.” He skirted a question on divisions, saying that different opinions on QE have been known “for a long time” and were “no surprise.”

“In light of our goal -- to mitigate the risk of de-anchoring -- we made the right decision and we were ahead of the curve,” according to Kazimir, who became Slovak central bank chief earlier this year.

With ECB interest rates at a record low, Villeroy echoed calls from Draghi and others for governments to take over from central banks, primarily by ending trade conflicts and launching fiscal stimulus.

“Monetary policy plays its role, but it should not -- less than ever -- be the only game in town. It should not even be the first game in town,” he said.

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