German Bundesbank President Jens Weidmann discussed the ECB’s recent policies, reiterated his opposition to government bond buys and warned against central banks coming under too much political pressure.
Are the ECB’s recent steps sufficient to bring inflation back to just below 2%?
We’ve decided on several rounds of far-reaching measures. The Governing Council expects these measures to bring inflation closer to the medium-term target.
Why did you oppose purchasing asset-backed securities?
With the recent decisions, the ECB’s monetary policy approach has changed from programs specifically aimed at credit easing towards a quantitative easing philosophy. This is an important policy shift, and the need for such a shift was debated contentiously in the Governing Council given the already loose monetary policy stance at the time and the TLTRO about to be implemented. Against the background of the announced target for the balance sheet, I see a risk that we will overpay for these assets. That would represent a transfer of risk from the banks and other investors to the central banks and ultimately to the taxpayers.
Would government ABS guarantees change your view?
With regard to our balance sheets, it certainly would make a difference. When it comes to taking risks for which taxpayers will foot the bill, the decision then rightfully lies with elected politicians. Still, the problem of socializing the risks to banks’ balance sheets remains.
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