ECB’s Weidmann: Emergency Measures Must End After Pandemic Ends

29 April 2021

By David Barwick – FRANKFURT (Econostream) – The measures introduced by the European Central Bank to address the pandemic-related crisis must end once the pandemic ends, Governing Council member and German Bundesbank President Jens Weidmann said Thursday.

‘While our emergency measures will have to end after the pandemic, market participants expect policy rates to remain very low for years to come’, Weidmann said in a speech to the International Conference on Household Finance.

‘If required to preserve price stability, monetary policy will have to be normalised again’, he said.

Economic prospects are currently ‘very uncertain’, being linked to the evolution of the pandemic, he said. The Bundesbank’s central scenario is based on the withdrawal of all containment measures by early 2022, he said. ‘In this scenario, the crisis will have only relatively little impact on potential output in Germany’, he said.

However, this also depends on whether second-round effects such as a large increase in corporate insolvencies can be avoided, he said. Moreover, ‘the pandemic could also have effects that might impair the economy beyond the time horizon of conventional forecasts and their medium-term risk assessments’, he said.

Such effects could include lastingly higher precautionary saving or deferred business investment, he said.

The Bundesbank expects the saving rate to ‘fall only slightly below its long-run average for some time, he said. ‘Still, this would be sufficient to fuel rapid growth in private consumption, making it a major engine of the economic recovery, once the pandemic has been brought under control.’