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ECB account reveals deep divisions over stimulus
FRANKFURT AM MAIN, Oct 11, 2019 (BSS/AFP) – European Central Bank
governors were divided as never before over their decision last month to re-
launch “quantitative easing” (QE) mass bond-buying, an official account of
the meeting showed Thursday, underscoring an already bitter public debate.
While “all members agreed that a further easing of the monetary policy
stance was warranted” to boost growth and inflation in the 19-nation
eurozone, the split came over what form the loosening should take.
A proposed “package” included a lowering a key interest rate further into
negative territory, shielding some of banks’ deposits in Frankfurt from the
resulting charges and restarting QE.
There was a “clear majority” for relaunching bond-buying — which amounted
to 2.6 trillion euros ($2.9 trillion) in a first iteration between 2015 and
2018.
But media reports and public statements suggest council members
representing most of the eurozone’s biggest economies including Germany,
France and the Netherlands were opposed.
Some judged bond-buying would have limited effect given market conditions,
while others labelled them “an instrument of last resort which should only be
deployed in the event of more severe contingencies”.
One governor warned that the ECB could even see itself driven by markets
to continually increase bond purchases, overstepping self-imposed limits,
without increasing inflation to its just-below-two-percent target.
Meanwhile there was also controversy over the “tiering” mechanism to
shield some bank deposits from negative rates.
That could undermine the negative rates’ goal of encouraging banks to lend
more into the real economy rather than socking away cash, some governors
warned.
Despite the intense debate, president Mario Draghi “concluded that all
members agreed on the need to act in response to the continued shortfall of
inflation… and that a clear majority of members supported the proposed
measures.”
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From the account, it is clear that “the ‘reservations’ were about
individual elements of the package, not the rationale” of lifting inflation
in an economy mired in uncertainty over the US-China trade war and other
external risks, Pictet Wealth Management strategist Frederik Ducrozet
commented via Twitter.
“This is what we need to hear from the dissenters rather than their
moaning and groaning,” he added, in a jab at the likes of German central bank
chief Jens Weidmann and the Netherlands’ Klaas Knot, who gave interviews soon
after the meeting blasting the ECB’s decisions.
German ECB board member Sabine Lautenschlaeger even announced her
resignation soon after, in a move triggered by the September measures.
“It is not the first time in ECB history that there have been dissenting
voices in the Governing Council, but they have rarely been as loud and
persistent as they are now,” said ING bank economist Carsten Brzeski.
Incoming boss Christine Lagarde’s “first task as new ECB president will be
to urgently fix the rift,” he added.
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