European Central Bank Policy Makers Remain Divided on Bond Purchases
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Version 0 of 1. FRANKFURT — Top officials of the European Central Bank offered dueling views over the weekend on how to deal with the risk of a downward price spiral in the eurozone, a sign that internal debate continues ahead of a crucial meeting next week. The central bank is widely expected to announce after its next meeting, on Jan. 22, that it will begin buying large volumes of eurozone government bonds to further push down interest rates. Such a program, known as quantitative easing, is akin to printing money and would be similar to the approach used in recent years by the Federal Reserve in the United States. The European Central Bank is under intense pressure to interrupt a decline in consumer prices, which could undermine corporate profits and lead to a surge in unemployment. But in separate interviews in European news media, members of the bank’s Governing Council differed on whether to begin quantitative easing soon, and if so, how to make it work in Europe’s fragmented bond market. Their comments suggest there is still a chance that a decision on the bonds could be delayed, despite nearly overwhelming market expectations that the Governing Council will announce a buying program next week. Sabine Lautenschläger, a German member of the bank’s executive board, said in an interview with the German magazine Der Spiegel that she did not think conditions were yet grave enough to warrant government bond purchases. There must be “a threat of exceptional risks’ materializing, and there must be reasonable balance between the benefits of, and risks entailed in, such a program,” Ms. Lautenschläger said. “I do not believe that to be the case at present.” But Ignazio Visco, the governor of the Italy’s central bank, said in an interview with the German newspaper Welt am Sonntag that there was a threat of deflation and that government bond purchases would be the most effective tool to combat it. Government bond purchases are “a standard instrument of monetary policy,” Mr. Visco said in the interview published on Sunday. Like all 19 central bank heads in the eurozone, Mr. Visco is a member of the European Central Bank’s 25-member Governing Council, which sets monetary policy. Ms. Lautenschläger and the other five members of the executive board are also on the Governing Council. Benoît Coeuré, a French member of the bank’s executive board, sounded more favorably disposed to quantitative easing during an interview on Saturday with the broadcaster France 24. He said the central bank has a responsibility to ensure price stability, and to achieve its inflation target of just under 2 percent. Consumer prices in the eurozone fell at an annual rate of 0.2 percent in December, according to an official estimate published on Wednesday. That heightened fears that the eurozone could already be suffering from deflation, a sustained decline in prices that causes people and companies to delay purchases because they expect prices to fall further. The rate of inflation in the eurozone has been declining for two years, but December was the first month since 2009 that prices actually fell. The central bank has already cut the benchmark interest rate to almost zero, so quantitative easing is the only plausible option left to push up inflation. Mr. Coeuré said that he did not think that the eurozone was in deflation, and said that he did not think that the bank would base policy on a single month of negative inflation. But he acknowledged that the bank was intensely discussing quantitative easing. “I don’t want to prejudge what my colleagues and I will decide on Jan. 22 — it’s too early,” Mr. Coeuré said. “But it’s clear that it’s a subject we are regarding with a lot of attention.” At the same time, Mr. Coeuré acknowledged the complexity of government bond purchases in the eurozone, where there is no asset comparable to the United States Treasury bonds that were purchased by the Fed in its quantitative easing program. The E.C.B. will have to decide how much of each eurozone country’s bonds to buy, a politically perilous task. Mr. Coeuré said that it was important to win the support of as many members of the Governing Council as possible. The bank has taken time to discuss the issue in order to ensure that the concerns of all members of the council are taken into account, he said. His statement raised the possibility that the bank could delay a decision on quantitative easing to allow more time to bring dissenters like Ms. Lautenschläger on board. Quantitative easing “should be an instrument to create confidence, to unite Europe, not to divide Europe,” Mr. Coeuré said. While Ms. Lautenschläger expressed opposition to government bond purchases now, she did not rule out supporting that option in the future. That could be taken as a signal that German members of the Governing Council are softening their opposition to quantitative easing, a prospect that is very unpopular in Germany. Ms. Lautenschläger is a former top official at the Bundesbank, the German central bank and a bastion of opposition to government bond purchases. Jens Weidmann, president of the Bundesbank and also a member of the European Central Bank’s Governing Council, has been a vocal opponent of government bond buying. Many Germans fear they would wind up suffering losses if the European Central Bank bought bonds that some governments of eurozone countries are later unable to repay. A decision on quantitative easing could also be influenced by proceedings at Europe’s highest appeals court this week. On Wednesday, a senior adviser to the Court of Justice of the European Union in Luxembourg is expected to issue a nonbinding opinion on an earlier plan by the bank to buy the bonds of stricken eurozone countries. That plan, never deployed, differs from quantitative easing in that it was intended to protect weaker eurozone countries from bond speculators. But the opinion from Pedro Cruz Villalón, one of the advocates-general at the Court of Justice, will be closely studied for any sign the court will restrict the remit of the central bank. Asked by the news media outlet France 24 if there would be a decision on Jan. 22 to begin quantitative easing, Mr. Coeuré said that the meeting “is an opportunity to do it, but not the only opportunity.” |