Weidmann Hits Back at Draghi Bid to Silence ECB’s QE Debate
Bundesbank President Jens Weidmann switched the focus of his opposition against European Central Bank stimulus to Mario Draghi himself, suggesting the president should be more open to different points of view.
Responding to Draghi’s recent warning that discord among ECB officials could undermine the effectiveness of monetary policy, the German central-bank chief said an “intensive discussion” about far-reaching measures such as bond-buying is not only normal, but “absolutely necessary.”
“The Austrian philosopher Karl Popper once stated that only a critical discourse could give us the maturity to consider an idea from many different perspectives and to judge it correctly,” Weidmann said in a speech in Vienna on Tuesday. “‘United in diversity’ is more than the motto of the European Union, which for some may seem abstract. It’s also the concrete mission to approach each other and bring people together.”
Speaking at the same event, Austria’s new central-bank Governor Robert Holzmann said issues discussed at the ECB have far-reaching consequences for Europe and require “extensive discussions, which also have to be controversial at times.”
While implicitly faulting the Italian’s leadership style, the comments also chime with those of incoming President Christine Lagarde, who said at the weekend that it’s good that the ECB has different opinions. Draghi insisted on a new round of quantitative easing against opposition from governors whose countries make more than half the euro zone’s population.
Among the dissenters were Executive Board member Sabine Lautenschlaeger, who unexpectedly quit last week. The German lawyer, a long-time opponent of QE, gave no reason for leaving more than two years before her term ended.
Weidmann said he “regretfully noted” Lautenschlaeger’s resignation, adding that her opinion enriched discussions and will be missed.
Repeating arguments he has previously made, Weidmann said the stimulus package, which also included an interest-rate cut and easier terms on long-term loans for banks, was excessive.
Prospects for the euro-area economy aren’t so bad as lending continues to grow, inflation forecasts were lowered only slightly and there is no risk of deflation, he said.
Weidmann stressed that the new QE program should respect the current rules limiting purchases to one-third of a country’s debt and compelling the ECB to buy bonds in relation to the size of a member state’s economy.
Purchases are set to continue until inflation is firmly tethered to the ECB’s inflation target of just under 2%. That’s unlikely to happen for at least another two years, based on the most recent forecasts, raising doubt whether the central bank will be able to find sufficient assets.
The public fight has cast a shadow over the final weeks of Draghi’s eight-year term, which ends this month. While his pledge to do whatever it takes to save the euro is widely credited with preventing the collapse of Europe’s monetary union, the Italian has often been criticized by colleagues for his go-it-alone approach.
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