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ECB has 'blurred the lines' of acceptable stimulus, warns Germany's Weidmann
The European Central Bank’s aggressive economic stimulus has “blurred the lines” between what the central bank is and isn’t allowed to do, a leading policymaker has warned.
Jens Weidmann, president of Germany’s Bundesbank, admitted that some of the tools deployed by the ECB could be interpreted as crossing into the realm of fiscal policy - typically seen as the remit of elected politicians, and not central banks.
Fiscal policy typically describes the set of economic levers used by governments, such as powers over taxation and public sector spending. By contrast, monetary policy, the domain of central bankers, has conventionally involved the adjustment of interest rates.
However, critics of the ECB have argued that the central bank’s bond-buying scheme have seen it overstep its bounds. Policymakers have increasingly come under fire as they have moved to scrap the €500 (£390) note and expanded asset purchases into corporate debt.
Speaking to German newspaper Die Welt, Mr Weidmann said that “some of the measures we [the ECB] have taken so far have blurred the lines between monetary and fiscal policy”. He added that this had made the central bank more vulnerable to criticism that it had strayed from its remit.
Mr Weidmann said that he believed “purchases of government bonds in the eurozone are problematic because the central banks become the biggest creditors of their states”.
Mr Weidmann’s remarks followed a perceived attack on the ECB’s independence by Wolfgang Schaeuble, the German finance minister. He attributed some of the success of Alternative for Germany, a far-right party, to the ECB’s ultra-low interest rate policy.
However, Mr Weidmann has publicly backed the ECB’s decision to adopt monetary stimulus in order to avert deflation in the euro area.
On the subject of disagreements with ECB president Mario Draghi, Mr Weidmann told Die Welt: “We may sometimes come to different conclusions on difficult issues but when it comes to the importance of price stability and the economic conditions for that, we agree.”
Mr Weidmann has been a noted hawk on the ECB's governing council, often favouring implementing less stimulus, rather than more.
Citi analysts said that while "the attacks on the ECB from German politicians have brought Mr Weidmann closer to the governing council mainstream, he is likely to continue to step on the brakes in discussions about any further stimulus".