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Bond purchases: Jens Weidmann criticizes ECB decision on government bonds

2019-09-13T16:38:13.479Z

Even during the euro crisis, the Bundesbank president was one of the opponents of Mario Draghi's monetary policy. Now he says the ECB president is over the mark.



Bundesbank President Jens Weidmann has criticized the decision of the European Central Bank to buy back government bonds on the capital market. "Such a far-reaching package would not have been necessary," Weidmann told Bild newspaper. The ECB was "over the target".

As of November, the ECB will buy € 20 billion worth of government bonds a month, "as long as necessary," said ECB President Mario Draghi on Thursday. With this, the central bank wants to boost the economy. The ECB also approved stricter penalty rates for banks depositing excess money with the central bank. The interest rate instead of minus 0.4 now minus 0.5 percent.

Dutch central bank chief Klaas Knot also said that the bond purchases were "disproportionate". According to insiders, "about ten" of the 25 competent members of the council were in favor of the monetary policy measure. ECB circles, on the other hand, said that this number had to be halved. ECB President Draghi himself said on Thursday that there had been "disagreements" in the central bank council on the resumption of bond purchases.

"Prevented worse"

Weidmann went on to say that "the economic situation is not really bad, wages are rising significantly, and the danger of deflation, ie permanently falling prices and wages, is not apparent". He was "by the way not alone" with his critical stance: among the critics in the Governing Council were insiders, according to the head of the French central bank, François Villeroy de Galhau, and the French Council member Benoît Cœuré.

Dutch central bank chief Knot also said that the current economic situation does not justify further easing of monetary policy, especially not the resumption of bond purchases. There are "good reasons to doubt the effectiveness".

The ECB had discontinued its former bond purchase program only at the end of 2018. Weidmann said that the resolute response of monetary policy to the financial crisis had been correct, "it has prevented worse". However, he had also criticized the ECB's actions at that time.

Last monetary policy decision

"However, it was always important to me that monetary policy does not fall into the wake of fiscal policy," Weidmann told Bild newspaper. "Because that endangers our ability to provide stable prices." The decision to buy more government bonds increased that risk and made it increasingly difficult for the ECB to step out of this policy. The side effects and financial stability risks of the very expansive monetary policy also increase the longer it lasts.

Asked about the consequences of the ECB's decision for savers and homebuyers, Weidmann said: "If you want to build, you might get cheaper loans, but savers are worse off." It would also be harder to make provisions for old age without taking more risks.

The term of ECB President Draghi will last until the end of October. It was his last council meeting with monetary policy decision. On 1 November, the former head of the International Monetary Fund, French Christine Lagarde, will take over the chair.

Source: zeit

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