ZCZC
BCN-10
EU-EUROZONE-ECB,INTERVIEW
ECB must end economic support despite risks: top official
FRANKFURT AM MAIN, Nov 26, 2018 (BSS/AFP) – The European Central Bank
should put an end to its years-long stimulus effort for the eurozone despite
a recent growth slowdown in the EU and rising economic risks, one of the
institution’s board member told AFP.
“It is time to gradually normalise monetary policy,” Sabine
Lautenschlaeger said.
She said that, while economic data showed “weaker-than-expected”
conditions for the eurozone, “economic growth is overall within our
projections.”
She added she was confident the Frankfurt-based ECB would reach its goal
of inflation close to, but below 2.0 percent.
Acceptable growth has convinced many ECB policymakers they can finally end
the bank’s mass purchases of government and corporate bonds, which served to
pump cash through the eurozone’s financial system and into the area’s real
economy, powering growth and boosting inflation.
The bond buying over the past three years has cost a total of 2.6 trillion
euros ($3 trillion).
Now that the ECB is prepared to end the scheme, fears have mounted in
recent months over risks like a possible no-deal Brexit or trade conflict
between Brussels and Washington.
But, Lautenschlaeger said, “right now I don’t see anything that could
change this assessment” of ending bond buying before ECB governors meet on
December 13.
– ‘Negative side effects’ –
Extending the purchasing programme going forward “would not bring
significant additional benefits, but it would increase negative side
effects,” she said.
Once the ECB has stopped adding to its stock of bonds, it would reinvest
the proceeds from the debt pile as they mature, making it a continued
presence on bond markets for years to come.
When combined with other measures like historic low interest rates, long-
term loans to banks and weekly deliveries of liquidity to financial
institutions, “the reinvestments will act as a sufficient stimulus,”
Lautenschlaeger predicted.
MORE/HR/1122
ZCZC
BCN-11
EU-EUROZONE-ECB,INTERVIEW 2 LAST FRANKFURT AM MAIN
Looking ahead, the German central banker expects interest rates could rise
“in the summer (mid-2019) or in the autumn, depending on the input we get
from incoming data”.
Long a voice calling to end bond-buying as soon as possible,
Lautenschlaeger added that in principle quantitative easing, or bond-buying
“should not be part of the normal policy toolbox”.
“It should be a tool of last resort, to be used only when there is a clear
risk of deflation.”
– Italy on watch –
At the same time as it weighs its exit from monetary stimulus, the ECB has
a close eye on the eurozone’s third economy, Italy.
A draft budget from Rome that would swell the country’s deficit has been
rejected by Brussels, with European officials saying it would not boost
growth nor shrink that country’s massive debt pile.
As vice-president of the Single Supervisory Mechanism (SSM) — the ECB’s
banking supervision arm — Lautenschlaeger said she was keeping an eye on
“changes and risks in the macroeconomic environment” for Italian lenders.
“Overall, the Italian banking system has become more resilient” since the
SSM took up its work in 2014, she said.
But financial firms in Italy and elsewhere have a long way to go in
slashing the amount of so-called non-performing loans (NPLs) — where the
borrower has fallen behind on repayments — on their balance sheets,
Lautenschlaeger acknowledged.
NPLs “will keep us busy for the coming years,” she said, even after five
years of steady growth in the eurozone.
The ECB’s tally of bad loans across the eurozone is 680 billion euros.
The eurozone is comprised of 19 of the current 28 EU nations.
BSS/AFP/HR/1125