ECB's Weidmann: Eurosystem Must Take Care Not to Get Caught in Wake of Fiscal Policy

30 November 2021

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Jens Weidmann on Tuesday urged once again that monetary authorities be wary of fiscal dominance.

In a speech for a virtual event, Weidmann, who heads the German Bundesbank, observed that Eurosystem central banks’ sovereign bond purchases had made them the largest creditors of euro area governments.

‘They must be careful not to get caught in the wake of fiscal policy’, he said. ‘And with sovereign debt high, monetary policy should be wary of any pressure to maintain its very loose stance for longer than the price outlook dictates.’

Weidmann, who has announced his departure as of the end of next month, highlighted the importance for monetary policy autonomy of a narrow mandate.

‘The broader central banks interpret their monetary policy mandate, the more likely they are to become entangled with politics’, he warned. ‘The more likely they are to be overburdened with ever new goals and desires. And the more likely their independence would be called into question.’