Bun­des­bank boss crit­i­cises ECB 'ba­zooka'

The Pak Banker - - FRONT PAGE -

BER­LIN: The pres­i­dent of Ger­many's Bun­des­bank on Satur­day crit­i­cised the lat­est pack­age of stim­u­lus mea­sures by the ECB in­clud­ing slash­ing rates still fur­ther, warn­ing against "reck­less" moves and un­in­tended fall­out.

In an in­ter­view with Ger­man jour­nal­ists Jens Wei­d­mann in­di­cated he was "not con­vinced" by the ef­fi­cacy of an un­prece­dented bar­rage of stim­u­lus mea­sures to jump­start the eu­ro­zone econ­omy. "The pack­age de­cided on did not con­vince me over­all," said Wei­d­mann. "I have al­ways drawn at­ten­tion to the fact that the longer the ef­fect of an ' ul­tra-re­laxed' mon­e­tary pol­icy lasts the weaker (that ef­fect) be­comes, Wei­d­mann told re­porters from the Funke Me­di­en­gruppe me­dia group.

"The more you speed things up the greater the risk of sec­ondary ef­fects," said Wei­d­mann. The Bun­des­bank, hailed for its fis­cal pru­dence in post-war Ger­many, is the largest share­holder in the ECB and even on tak­ing up his po­si­tion in 2011 Wei­d­mann used the oc­ca­sion to urge a re­turn to re­turn to "nor­mal" mon­e­tary pol­icy. He fur­ther warned at the time there was a dan­ger of un­fore­seen ef­fects in keep­ing in place for too long ex­cep­tional sup­port mea­sures for banks. "Fi­nan­cial mar­ket bub­bles can come about which, if they burst can com­pli­cate the work of cen­tral banks," said Wei­d­mann, who pre­vi­ously served as eco­nom­ics ad­viser to Ger­man Chan­cel­lor An­gela Merkel.

"Rather than reck­less ex­per­i­ments on mon­e­tary pol­icy would be more sen­si­ble to take a break," he sug­gested.

The ECB sur­prised fi­nan­cial mar­kets af­ter cut­ting its main in­ter­est rate to zero per­cent for the first time and ramp­ing up a huge stim­u­lus pro­gramme amid doggedly low in­fla­tion and sub­dued growth. Wei­d­mann also warned against the con­cept of "he­li­copter money" whereby the ECB would seek to in­ject money di­rectly into house­holds to boost spend­ing to avert de­fla­tion. ECB head Mario Draghi last week said the con­cept was on the sur­face "very in­ter­est­ing" al­beit the bank had yet to look into it closely. "He­li­copter money is not manna from heaven. On the con­trary, it would make a huge hole in cen­tral bank bal­ance sheets," said Wei­d­mann.

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