ECB Brief: Weidmann Rehashes Opposition to Asset Purchases, Raises No Objection to Symmetry

1 July 2021

By David Barwick – FRANKFURT (Econostream) – This is a quick take on comments made Thursday by European Central Bank Governing Council member and German Bundesbank President Jens Weidmann in a speech at an event of the Ludwig Erhard Foundation:

  • On the subject of asset purchases, Weidmann reiterated all his well-known views calling QE into question. On the inflation target to come out of the strategy review, he appears to have gotten fully behind symmetry.
  • Says vaccination progress gave hope that the pandemic would be contained in the long term, but that the pandemic’s long-term consequences were unclear.
  • Professes, as many times previously, scepticism about QE, arguing that it ‘can be a legitimate and effective instrument of monetary policy’ but can also blur the boundaries between monetary and fiscal policy.
  • Wants QE to ‘be reserved for exceptional situations’, one of which he conceded is the pandemic. He has said this many times as well.
  • Insists on the importance of capital market discipline: ‘the yield gaps between bonds of member states with different credit ratings must not be artificially levelled.’ This as well is a recurring theme for him.
  • Cautions again ‘that our emergency measures do not become permanent’ and repeats insistence that ‘[w]hen the emergency is over, the PEPP must be terminated.’
  • Warns that ‘rising short-term interest rates will have a faster impact on public finances than in the past’ and that this could contribute to ‘political pressure to keep interest rates low even when the price outlook actually calls for a normalisation.’
  • Urges that ‘the Eurosystem must already communicate credibly today that if price stability requires it, we will raise interest rates - without regard to government finances.’
  • Raises no objection to a symmetric price stability objective, as this ‘would, in my view, be clearer and also easier to understand. It could help keep inflation expectations firmly anchored.’ Weidmann used to be more sceptical of explicit symmetry but then eased and has now apparently abandoned all opposition.
  • Expresses misgivings about average inflation targeting – it ‘demands a lot’ from economic agents.
  • Worries that ‘[s]taying still when the inflation rate exceeds its target value in the medium term could rather be misunderstood, namely as an expression of fiscal dominance’, but calls it ‘important to me that our monetary policy has no bias - neither in one direction nor in the other.’