Bundesbank Head Says ECB Needs to Be Ready to Rein In Stimulus
May 22 2017 - 1:51PM
Dow Jones News
By Tom Fairless
The European Central Bank shouldn't wait too long before
withdrawing its large monetary stimulus, German central-bank
president Jens Weidmann warned on Monday, wading into a debate over
how quickly the ECB should signal a policy shift.
Pressure has been building in Northern Europe for a policy
change from Frankfurt as the region's economy picks up. Eurozone
inflation recently jumped to 1.9%, within the ECB's target range,
after languishing close to zero for years.
But top ECB officials have yet to signal they are ready to
change course and start winding down their EUR60 billion-a-month
bond-purchase program, known as quantitative easing or QE. ECB
President Mario Draghi says the topic hasn't even been discussed by
the bank's 25-member governing council.
Speaking in the German city of Bochum, Mr. Weidmann argued that
the ECB's easy-money policies are currently appropriate because
underlying inflation in the 19-nation eurozone -- excluding
volatile food and energy prices -- remains weak.
If the region's economic recovery continues, however, the ECB
"will move closer toward normalizing" its policy mix, the
Bundesbank president said.
"It's important that the central bank tightens policy again when
that's required for controlling inflation," Mr. Weidmann said.
The Bundesbank president has been the most outspoken internal
critic of the ECB's massive bond-purchase program, which is aimed
at supporting growth and inflation in the currency bloc. He
reiterated that criticism on Monday, arguing that bond purchases
blur the boundary between fiscal and monetary policy.
In particular, the ECB shouldn't delay changing its policy mix
because governments want to keep their borrowing costs low, he
said.
Still, Mr. Weidmann argued it was "indisputable" that the ECB's
easy-money policies are currently appropriate, even if there are
different opinions about the right level of stimulus and the choice
of instruments.
Over the long term, though, easy-money policies generate risks
for the stability of the financial system by undermining the
profitability of banks and potentially creating financial bubbles,
he warned.
Write to Tom Fairless at tom.fairless@wsj.com
(END) Dow Jones Newswires
May 22, 2017 13:36 ET (17:36 GMT)
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