BERLIN (Reuters) - Recent strong criticism of the European Central Bank’s monetary policy may be the result of some measures having blurred the lines between monetary and fiscal policy, ECB Governing Council member Jens Weidmann told a German newspaper.
Bundesbank chief Weidmann said the Governing Council agreed monetary policy needed to be expansive in the current environment and that he and ECB President Mario Draghi were in agreement when it came to the importance of price stability.
But he suggested in an interview published by newspaper Die Welt on Tuesday that there was some basis for recent criticism.
“The vehemence of the debate perhaps also stems from some of the measures we have taken so far having blurred the boundaries between monetary and fiscal policy and having redistributed government liability risks via central bank balance sheets,” he said, adding this had made the ECB more vulnerable to attack.
German politicians have loudly complained about the ECB’s low-interest rate policy in recent weeks. Finance Minister Wolfgang Schaeuble has partly blamed it for the rise of the right-wing Alternative for Germany (AfD), the Wall Street Journal reported.
On Tuesday Schaeuble said central banks should find ways to gradually raise their record-low interest rates.
On his relationship with ECB President Mario Draghi, Weidmann said: “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.”
Weidmann said the ECB Council had to be careful not to overstep the boundary to fiscal policy and that was why the bank’s latest government bond purchase program foresaw very limited sharing of liability.
But he added: “Nonetheless I still think purchases of government bonds in the euro zone are problematic because the central banks become the biggest creditors of their states.”
Asked how much further the ECB could push down negative interest rates, he said: “We should let what has been decided take effect and not start speculating about further measures yet again - that applies to interest rates too.”
He said low interest rates were a burden for banks’ profits but it was not the aim of monetary policy to ensure a bank gets an adequate profit, though he added that weak earnings at banks could cause financial stability risks that could then impair the effectiveness of monetary policy and so price stability.
“That’s why we can’t ignore them,” he said.
He said while low interest rates burdened citizens as savers, they helped them as employees, taxpayers or homeowners. He said the low-rate environment would cause some people to save less and consume more while others would take more risks in search of higher returns and others still would save more for their old age.
“Overall we’re only seeing limited reactions up until now in our data for Germany,” he said.
He said the period of extremely low interest rates should not last longer than absolutely necessary.
He said he did not approve of discussions about “helicopter money”, or free cash dished out to citizens in a bid to stimulate spending and inflation, and added that it was not on the table for the ECB’s Governing Council.
Turning to Greece, he said discussions about a haircut were secondary because servicing debt was not Athens’ most pressing problem, which was rather sticking to its program and managing to stand on its own two feet economically again.
Reporting by Michelle Martin; Editing by Andrew Roche