Bonds News

WRAPUP 1-Weber: ECB asset-buying a failure; advocates end

NEW YORK/FRANKFURT, Oct 12 (Reuters) - The European Central Bank’s program to stimulate the economy by buying government bonds has not worked and should be scrapped, Governing Council member Axel Weber said on Tuesday.

Weber, who had opposed the ECB’s controversial program to buy bonds from the start, said the ECB’s program to buy had failed to calm bond market tensions and risked blurring the lines between fiscal and monetary policy. He voiced confidence that European economies were on “a stable path” toward recovery.

Speaking separately in New York, the president of the ECB Jean-Claude Trichet, highlighted the still-fragile financial system as he urged major economies around the world to avoid a race to devalue their currencies.

Trichet, in response to a question at an event sponsored by the Economic Club of New York on whether the ECB would react to any further monetary easing from other major central banks, said he would first ascertain any impact from such measures on the European economy before making any decisions.

“I never take, on behalf of the governing council, any precommitments. I only say we will do whatever is necessary,” Trichet said.

Economists worry a weak U.S. dollar EUR= and relatively strong currencies elsewhere, in part a product of expectations of further monetary easing by the U.S. Federal Reserve, could push nations into a round of currency depreciations to help their exports.

Some have dubbed this prospect a “currency war.”

“This is still no time for complacency,” said Trichet. “What we need today is not ‘wars’ of any kind, but a strong and renewed commitment to confident and resolute cooperation.

“Together we must say ‘no’ to protectionism and ‘no’ to beggar-thy-neighbor policies,” he said.

The plea for unity came after weekend meetings of global policy makers failed to make headway in resolving disputes about currency policy and uneven global growth in the lead-up to a meeting of Group of 20 leaders in November. [ID:nN07222462]


Weber, who also heads Germany’s Bundesbank, was blunt in his criticism of the ECB’s asset-buying program.

“There is no evidence that asset purchases have had any significant impact on average euro-area sovereign bond yields,” he said. “These securities purchases should now be phased out permanently.”

Weber, who is seen as a front-runner to take over for Trichet when his ECB term expires next year, said Europe’s economies varied significantly but overall the region’s health was improving.

“Having been hit hard by the financial crisis, the European economy as a whole is now on a stable path towards recovery,” he said in a speech at Foreign Policy Association.

“The Greek crisis in spring clearly demonstrated that a smooth recovery cannot be taken for granted, but I am confident that the danger of sliding back into recession is negligible.”

He repeated Germany’s calls for the euro zone to put in place a mechanism to allow troubled countries to default on their debts in a controlled way.

Trichet, for his part, said recent data had confirmed the central bank’s expectation for an easing of economic growth in the euro area during the second half of the year that the expansion remained in place, reaffirming the ECB’s outlook following last week’s policy meeting.

He also said inflation was not a pressing concern for the region.

“We expect inflation to remain moderate in 2011. Very importantly, we note that inflation expectations over the medium to longer term continue to be firmly anchored in line with our definition of price stability,” he said. (Additional reporting by Krista Hughes in Frankfurt and Kristina Cooke and Richard Leong in New York; Editing by Leslie Adler)