Germany set the scene for a bitter battle with the European Central Bank president, Mario Draghi, over emergency measures to revive the eurozone’s flaccid economy, as senior officials hardened their opposition to a full-scale money-printing programme.
The ECB is fighting to reflate a barely growing eurozone economy with inflation of just 0.3 per cent registered in November, but has so far stopped short of using central bank money to buy up sovereign debt – the so-called quantitative easing employed by the US, UK and Japan – due to fierce resistance from the inflation-wary Germans.
The central bank has cut interest rates to 0.05 per cent, launched a Funding for Lending-style credit scheme, and charged banks to hold deposits with the ECB to encourage credit growth, with limited success.
But the Bundesbank president, Jens Weidmann, said the recent collapse in oil prices – which risks pushing Europe into deflation territory – would be a boon for growth, lessening the need for QE. He told a German newspaper: “An economic stimulus programme has been handed to us, why should we add to that with monetary policy?” He added: “The situation in Europe isn’t as bad as some people believe.”
Germany is a long-time opponent of QE amid concerns the central bank could end up bankrolling troubled governments and lose sight of its mandate to keep prices stable. Mr Draghi could act without the support of Germany but the pressure of enacting such a policy without the support of Europe’s biggest economy would be immense.
The head of the panel of economic experts that advises the German government also said there was “no reason” for the ECB to start buying up sovereign bonds. Christoph Schmidt said: “The more active the central bank is... the bigger the risk that France and Italy throw necessary reforms into the long grass.”Reuse content