Weidmann Warns Green QE Could Overburden ECB Monetary Policy

(Bloomberg) --

Bundesbank President Jens Weidmann warned that giving preference to green bonds when conducting quantitative-easing policies risks overburdening central banks and could eventually endanger their independence.

Speaking in Frankfurt on Tuesday, Weidmann argued that so-called green QE could create potential conflicts with the European Central Bank’s main goal of maintaining price stability. Choosing measures to fight climate change is a task for elected governments, he said, adding that policy makers don’t have the democratic legitimacy to pursue environmental goals.

“Our mandate is price stability, and the implementation of our monetary policy must respect the principle of market neutrality,” said Weidmann, who is also a member of the ECB’s Governing Council. “And there could be conflicting goals as soon as monetary policy dictates that you need to step on the brake and reduce the purchase of bonds.”

After all, he said, there is little understanding why the fight against climate change should only continue during periods of low inflation.

Weidmann’s cautious approach contrasts with incoming President Christine Lagarde’s view that a discussion on whether and how central banks can contribute to mitigating climate change should be “seen as a priority.”

While Lagarde stopped short of supporting green QE during her hearing in the European Parliament, she also said the ECB will “facilitate the incorporation of environmental considerations in central bank portfolios” once a proper taxonomy for green assets is in place.

The ECB is set to resume bond buying on Friday as part of its latest stimulus package that faced significant opposition from within the Governing Council.

A group of German plaintiffs filed a motion in Germany’s Constitutional Court on Monday seeking an injunction against the Bundesbank’s participation. The court has rejected a similar bid in the past.

Weidmann, who has been a long-standing critic of bond purchases, reiterated in Frankfurt that QE should by no means become a permanent instrument of monetary policy.

If it’s only used in exceptional situations “then another question would also be superfluous -- namely whether the bond purchase program in its existing form favors CO2-intensive companies,” Weidmann said.

--With assistance from Jana Randow.

To contact the reporters on this story: Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net;Yuko Takeo in Frankfurt at ytakeo2@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Zoe Schneeweiss, Brendan Murray

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