Weidmann: End-date for asset purchases would have been justifiable Interview published in El Mundo
07.01.2018 | Jens Weidmann
Interview with Jens Weidmann conducted by Carmen Valero.
Mr Weidmann, will we see an end to the ECB's accommodative monetary policy in 2018? Given current rates of inflation, would it be reasonable to wind down asset purchases more swiftly or to raise interest rates?
First of all, the economic situation in the euro area has continued to improve in recent times. The upswing is now highly robust and has encompassed all the countries in the euro area. This is one reason why the Eurosystem staff revised their growth forecasts upwards once again. As the state of the economy continues to improve, domestic price pressures will rise as well. In my opinion, the price outlook is consistent with inflation returning to a range that will maintain price stability, and that is why it would have been justifiable to set a clear end-date for the asset purchases. The ECB Governing Council has decided to press ahead with purchases, with no fixed end-date, until at least September 2018 – and they will certainly not come to an abrupt stop after that point. The fact of the matter is that, even after the net purchases have ended, monetary policy will remain highly accommodative, as the stimulus created by the asset purchases is measured mainly by the stock of assets on our balance sheet and less by the volumes of net purchases. And these stocks will remain substantial even after the net purchases have been phased out, as the ECB Governing Council has already decided to reinvest the proceeds from maturing assets until further notice. Fur-thermore, the ECB Governing Council's forward guidance only raises the prospect of rises in interest rates well beyond the end of the net purchases.
The ECB's asset purchases have drawn a great deal of criticism in Germany amid claims that they disproportionately benefit periphery countries, such as Spain. However, a report by the Bundesbank has confirmed that Germany, too, has reaped large rewards from the purchase programmes, regarding interest rates, for example. What is your take on this?
The low interest rates have produced winners and losers in every country. Let me give you a few examples. Savers are feeling the pinch and seeing very little return on safe investments and perceive this as a burden; meanwhile, employees are benefiting from the improved state of the economy and a lower risk of unemployment. People with debt, such as those who have built houses or made investments, similarly stand to gain from the low rates. A low-interest-rate setting also means that the public sector is not as burdened by borrowing costs. But, as members of the ECB Governing Council, we do not make monetary policy for or against savers, or for or against the interests of any particular country. Our duty is to ensure price stability across the whole of the euro area. And price stability is defined as a medium-term goal, and quite deliberately so, so it's not about hitting the target right away or all of the time. That's particularly relevant whenever the measures at our disposal risk unleashing more sizable side effects than our standard toolkit. This is the case with the Eurosystem's government bond purchases, for instance, which risk blurring the line between monetary policy and fiscal policy. Central banks have become the euro area countries' biggest creditors. Asset purchases make government financing conditions far more reliant on our monetary policy than under normal circumstances. This could lead to the ECB coming under political pressure to leave its monetary policy in accommodative mode for longer than appropriate from the perspective of price stability.
Germany has made a vital contribution to the banking union, but that framework is still incomplete. What needs to happen to make a European deposit insurance scheme a reality?
A European deposit insurance scheme is a kind of insurance for bank deposits. It can help to boost financial stability in the euro area. On its own, that would certainly be a good thing. But one problem is that a lot of banks are still saddled with huge stocks of non-performing loans. That's legacy debt. Insurance, however, is only ever taken out to cover future risks. You try taking out home insurance when your pipes have already burst. Not a single insurer would be willing to take you up on that, and the same is true for deposit protection. It's about doing things in the right order: reducing risk, then sharing risk. And what's more, as long as banks continue to count among the main buyers of government bonds, introducing a common European deposit insurance scheme would be tantamount to savers insuring public finances. That is why the sovereign-bank nexus is another issue that will need to be addressed before a common deposit insurance scheme can be put in place.
You have always said that economic growth in the euro area will not be achieved solely through accommodative monetary policy. Do you believe that a European finance minister, a common European fiscal policy or a European monetary fund would be a step in the right direction?
We on the ECB Governing Council are in agreement that monetary policy cannot create lasting growth. The only way to lift the economy to a higher rate of lasting growth is to embrace structural reforms that boost competition in goods markets or labour market flexibility, to name but two. Forward-looking education policy and a smooth public administration system can contribute to growth as well. In addition, a number of studies show that unsound public finances hold back economic growth. Bearing this in mind, I wouldn't expect a European finance minister who allocates public funds throughout the euro area or taps new sources of debt to be a catalyst for growth. I do, however, think that there are indeed policy areas where it might make sense to share responsibility and areas that could be run and funded collectively at the European level. Climate protection and securing the EU's external borders fall under this category, for example.
Rumour has it that you could be the next ECB president with Luis de Guindos as your vice-president. Do you think that Spain should play a larger role on the ECB Executive Board in the future?
Answer: The general tendency to look at the nationality of Board members before anything else is misguided, in my view. Surely, what counts is that the ECB Executive Board continues to be made up of strong and capable individuals. And if one particular country can put forward a compelling candidate who fits the bill, then we ought to be grateful. This, of course, applies to Spain as well.
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