AMSTERDAM (Reuters) – Conservative policymakers slammed the European Central Bank’s lavish stimulus measures on Friday, voicing doubts about the need and effectiveness of a package that could consume most of the bank’s remaining firepower.
Klaas Knot, president of De Nederlandsche Bank NV, speaks at the Group of 20 (G-20) high-level seminar on financial innovation “Our Future in the Digital Age” on the sidelines of the G-20 finance ministers and central bank governors meeting in Fukuoka, Japan June 8, 2019. Kiyoshi Ota/Pool via REUTERS
Facing a protracted growth slowdown, the ECB cut rates deeper into negative territory on Thursday and relaunched fresh bond purchases with no scheduled end-date, a move that divided the normally collegial Governing Council.
Although no vote was taken, sources with direct knowledge of the discussion said that over a third of policymakers opposed the fresh asset buys, pushed by outgoing ECB chief Mario Draghi, an unusually high number for a body that normally strives for consensus.
“This broad package of measures, in particular restarting the asset purchase program, is disproportionate to the present economic conditions, and there are sound reasons to doubt its effectiveness,” Dutch central bank chief Klaas Knot, a frequent critic of the bank’s ultra-easy monetary policy, said.
While disagreements are frequent, ECB policymakers usually line up behind decisions and refrain from openly criticizing its policy.
Bundesbank President Jens Weidmann, another key critic, also said the stimulus was excessive, and Thursday’s decisions indicated that rates will stay low for a long time.
Germans have been especially irked by negative ECB rates and mass-selling newspaper Bild portrayed Draghi as “Count Draghila”, a blood-sucking vampire, who is sucking dry the bank accounts of German savers.
Other dissenters on Thursday included French central bank governor Francois Villeroy de Galhau, ECB board member Benoit Coeure, also a Frenchman, German board member Sabine Lautenschlaeger and Estonian central bank chief Madis Müller, sources told Reuters.
While each policymaker gets one vote, the dissenters represented countries that account for more than half of the euro zone’s gross domestic product (GDP).
Knot said the euro zone economy is running at full capacity, wages are increasing and that financing conditions are so easy that they do not impede the flow of credit.
“There are increasing signs of scarcity of low-risk assets, distorted pricing in financial markets and excessive risk-seeking behavior in the housing markets,” added Knot, a member of the ECB’s policy-setting Governing Council.
Austrian central bank chief Robert Holzmann, meanwhile, said he was worried the ECB had made a mistake and that such a broad package should not have come before the bank’s planned policy review, which could even see the inflation target of just below 2% lowered.
“This (review) is something I had hoped the bank should have been doing before making this decision,” Holzmann told Bloomberg TV.
“It may be that 2% (inflation) at the moment is out of reach and 1.5% also signifies stable prices, almost stable prices. So there is no need to … use all the power you have in order to move up to 2% if the cost is too high,” he added.
Reporting by Bart Meijer and Michael Shields; Writing by Balazs Koranyi; Editing by Toby Chopra and Gareth Jones