ECB Pandemic Program Is Temporary Crisis Measure, Weidmann Says
ECB Pandemic Program Is Temporary Crisis Measure, Weidmann Says
(Bloomberg) -- Bundesbank President Jens Weidmann warned governments not to rely on the European Central Bank to keep borrowing costs artificially low once the economic fallout from the pandemic is contained.
The German argued it’s important that the 1.35 trillion-euro ($1.5 trillion) Pandemic Emergency Purchase Program doesn’t set wrong incentives for public finances. When the inflation outlook requires a normalization of monetary policy, the ECB needs to do what is necessary to safeguard price stability, he added.
“It needs to be clear that the PEPP is guided by our primary objective, linked to the pandemic situation, and therefore temporary in nature,” Weidmann said in a speech in Frankfurt. “Policy makers must not assume that we would keep the financing costs of governments low forever or iron out any differences in sovereign-risk premia.”
The ECB’s pandemic program has been instrumental in supporting euro-area governments in their fight against the worst economic crisis in living memory. While the institution has been using the flexibility of the scheme in distributing purchases across different member states, Weidmann said that shouldn’t mean they are “unbound.”
“The ECB capital key provides a useful benchmark for PEPP holdings at the end of our net purchases.” he said. “It is precisely to uphold our unlimited commitment to the euro that we have to watch out for the limits of our mandate, and deliberate continuously about our means and ends.”
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