ECB’s Hansson Sees No Need to Rush Stimulus as Economy Brightens
European Central Bank policy maker Ardo Hansson said there’s no need to hurry to add stimulus to the economy as “green shoots” signal that the bloc’s slowdown might finally be passing.
The Governing Council member, in an interview in Frankfurt, cited better-than-expected growth and inflation as signs that the outlook could still improve in the second half of the year -- as the central bank predicted in March. Investors want to see if that forecast will be revised at next month’s policy meeting, and whether officials will release the details of a program of new long-term bank loans to keep credit flowing.
“I’d wait and see how these things transpire over the next few months,” said Hansson, a Harvard-educated economist and outgoing head of Estonia’s central bank. “This could now be the beginning of something better.”
Euro-area growth slowed to a crawl in the second half of 2018, blighted by global trade tension and shocks to Germany’s manufacturing sector. Hopes that the weakness would be temporary were dented early this year -- just as the ECB ended its bond-buying program -- after surveys showed sentiment crumbling. The European Commission cut its growth forecasts for the euro area this week and said it sees “pronounced” risks.
Still, an expansion of 0.4 percent in the first quarter was twice as high as the previous three months and consumer-price growth accelerated in April. Hansson is also encouraged by signs of upward wage pressure as unemployment falls, saying that gives him “fundamental confidence” that the central bank is on the right track.
The 60-year-old Estonian, born in Chicago, said an announcement on new support measures for banks doesn’t have to be taken in June. The ECB will start the so-called TLTRO in September, offering cash for two years to smooth lenders’ refinancing plans, but hasn’t yet said what the loans will cost. This is the third such program since 2014, and Hansson said banks shouldn’t get used to it always being around.
“It has to be different than business as usual, but it also has to keep the door open for further normalization,” he said. “The last TLTRO was very generous, but now it has to be on a trajectory when it doesn’t become a steady-state situation.”
He saw little hope that officials are close to agreeing on a way to mitigate the damage of negative interest rates on bank profitability, saying it “hasn’t really been discussed in any meaningful way” and warning against “over-engineering.” The idea of tiering, or exempting some bank deposits from negative rates, is being analyzed by the ECB but many policy makers are said to lack enthusiasm.
The June 6 policy meeting will be Hansson’s final one before his term as governor ends, part of a sweeping change in the euro zone’s top monetary officials this year as half the six-member Executive Board and several national governors depart.
His own legacy in Estonia includes heading the central bank at a time when money-laundering scandals tainted the nation. He said oversight has now toughened significantly and he’s “not worried that there will be systemic cases based on where we are now.”
Hansson is seen as a relatively hawkish member of the Governing Council, and an outside shot for the presidency when Mario Draghi leaves in October, though he reiterated that he’s not interested.
The race for the top job has opened up a debate over whether the ECB should reassess its policy framework after years of effort and trillions of euros in stimulus trying to revive inflation. The U.S. Federal Reserve is undertaking a study of its own. Hansson acknowledged that the ECB will need a review, but not yet.
“You don’t conduct maintenance on the plane during the flight, but only when you’re back on the ground,” he said. “I don’t see any urgency to have this discussion.”
©2019 Bloomberg L.P.