Frankfurt: European Central Bank executive board member Sabine Lautenschlaeger said quantitative easing isn’t the right policy choice for the euro area currently, hardening a split among officials over the right response to slowing inflation.
“A consideration of the costs and benefits, and the opportunities and risks, of a broad purchase program of government bonds does not give a positive outcome," Lautenschlaeger, a former Bundesbank vice-president, said at an event in Berlin on Saturday. “There are very few shared competencies in fiscal policy. As long as this is the case, the ECB’s purchase of government securities is inevitably linked to a serious incentive problem."
Lautenschlaeger’s comments signal she’s become ECB president Mario Draghi’s highest-ranking opponent in the debate over introducing QE to the euro area. They echo the position of Bundesbank president Jens Weidmann, who has said QE diverts attention from the need for governments to make structural adjustments to their economies.
Euro-area inflation slowed to 0.3% this month, far below the ECB’s goal of just under 2%, and plunging energy prices are increasing the downward pressure.
“Long-term interest rates on Spanish and Italian government bonds, for example, are already lower than those from the US or the UK," Lautenschlaeger said. “It is, therefore, questionable whether we should ‘depress’ interest rates for the securities class even further."
The yield is currently 1.9% on Spanish 10-year debt and 2.03% on Italian 10-year bonds, compared with 2.16% on the equivalent US treasuries and 1.93% on UK gilts.
Lautenschlaeger’s comments impinge on the customary “quiet period" in the week before monetary-policy meetings when officials refrain from speaking on possible measures. The ECB’s governing council gathers in Frankfurt on 4 December.
After starting a long-term loan plan for banks and an asset-purchase programme for covered bonds and asset-backed securities to boost the ECB’s balance sheet, policy makers have wrangled in recent days over what comes next should inflation fail to respond.
Draghi said on 21 November that inflation has to be returned to target “as fast as possible", and named government-bond purchases as a possibility. ECB vice-president Vitor Constancio argued on 26 November that debt purchases could be conducted on the basis of the ECB’s capital key, roughly proportional to the size of each member state’s economy.
“Even if it is good to be prepared, one should beware of showing activism," Lautenschlaeger said. “In any case, we’d have to wait three, four, five months" to be able to judge the impact of existing stimulus, she said.
Lautenschlaeger, who also serves as vice chair of the ECB’s bank-supervision arm, has previously expressed scepticism over the ABS programme.
“Since monetary policy measures also have side effects, a central bank should use the mildest means to achieve the fewest possible side effects," she said on Saturday. “Unanimous monetary policy can and must maintain price stability. No more and no less." Bloomberg