ECB’s Weidmann: Economy Could Need More Stimulus Next Year

27 July 2020

By David Barwick – FRANKFURT (EconoStream) – European Central Bank Governing Council member Jens Weidmann said on Monday that it is possible additional stimulus – not necessarily monetary – would be needed by the economy next year.

In an interview for the newspapers of German media company Funke Mediengruppe, Weidmann, who heads the Bundesbank, urged waiting for now to see the effect of policy measures taken to date.

Weidmann expressed support for the ‘decisive remedial action’ taken by governments to mitigate the economic fallout from the pandemic, and said that Germany could shoulder the additional debt involved, according to a text of the interview provided by the Bundesbank.

Asked whether he considered further assistance programmes possible, he replied, ‘Yes, if necessary, there’s room to take things up a notch again. That may well end up happening – it’s highly uncertain how things are going to develop, after all. But for now, it is a case of waiting and seeing how the measures already adopted actually work.’

He reiterated: ‘…I don’t think we can immediately rule out the possibility that the economy might be in need of further stimulus next year.’

There was no indication that Weidmann had in mind stimulus of the kind the ECB would provide; no explicit mention of monetary policy was made in the interview.

At the moment, policy should be contributing to ‘kick-starting economic recovery’ as the economy emerges from the trough, he said, citing increased retail sales and output. Industry is lagging, however, he said.

The summit of European leaders earlier this month that led to a €750 billion recovery fund shows the EU ‘capable of taking action in these times of crisis’, Weidmann said. ‘Solidarity in Europe – including financial solidarity – is, I think, the right approach in this situation.’

He called for controls ‘to ensure that the funds are used in a meaningful and efficient manner’ and urged that at a minimum, the agreement ‘not serve as a stepping stone to large-scale EU debt as a means for regular budgetary financing.’