ECB’s Weidmann: Monetary Policy Making a ‘Crucial’ Contribution

5 October 2020

By David Barwick – FRANKFURT (EconoStream) – Monetary policy is making a crucial contribution by ensuring that the economic fallout from the pandemic does not trigger second-round effects, European Central Bank Governing Council member Jens Weidmann said on Monday. In a speech delivered virtually at the Frankfurt School of Finance & Management, Weidmann said the flattening of the German recovery was expected. The upturn in the euro area’s largest economy is subject to ‘major’ uncertainty about the course of the pandemic, he said. ‘However, the recovery in Germany also hinges on something else: second-round effects need to be prevented so that they cannot intensify and entrench economic problems.’ Monetary policy is doing its part by ensuring banks have access to sufficient liquidity and keeping borrowing costs down, he said. This contribution ‘is crucial to ensuring that the economic crisis is not further aggravated by the financial system.’ A wave of corporate bankruptcies is an additional risk that would leave many unemployed and ‘scar the economy as a whole’, Weidmann said. The support provided by fiscal policy has been ‘the right course of action in Germany and elsewhere.’ Weidmann reiterated his view that the German economy would show strong third-quarter growth. The flattening of the rebound ‘has been expected’, he said. ‘… while the first few metres of the climb out of that trough were comparatively easy, the upward path to the previous level is still long and fraught with uncertainties.’