FRANKFURT (Reuters) - The euro zone’s economic problems do not call for the same sort of asset-purchasing programmes that central banks in the United States or Japan have adopted, a European Central Bank policymaker said on Thursday.
The U.S. Federal Reserve and the Bank of Japan have each announced fresh rounds of quantitative easing (QE) in the last couple of days, buying financial assets to pump money into weak economies with the goal of stimulating growth.
With some German policymakers in particular worried that the ECB is overstepping its mandate and risking a spike in inflation, the ECB says it is taking a different path for different reasons.
With its new plan to launch a new and potentially unlimited round of bond purchases from governments that have signed up to an EU/IMF bailout programme, the ECB wants to ensure that the interest rates it sets for the 17 euro zone countries filter through to companies and households.
Benoit Coeure, who is in charge of market operations on the ECB’s executive board and oversees the implementation of the new programme, said the ECB also wanted to address investors’ unfounded fears of the break-up of the bloc and its currency.
“In the euro area as a region, there are currently no clear signs of deflation fears that would justify QE,” Coeure said in the text of a speech at Sciences Po in Paris on Thursday.
The ECB’s new bond programme was a key element in preserving price stability, Coeure said, adding that the bank’s independence and clear focus on price stability might not be enough to ensure the ECB met its goal of keeping inflation low and stable under all circumstances.
The euro zone is also less dependent on credit market funding than, for example, the United States, which means that U.S.-style QE might not have the same effect in the euro zone and would need to be adjusted accordingly.
Coeure warned governments not to take advantage of the ECB.
“The notion that central banks have an unlimited capacity to create money is an illusion and thus cannot be used as an excuse not to reform the economy,” Coeure said.
The plan could only succeed if action was taken by governments, at national and at euro area level, to restore long-term growth and bridge fiscal and economic imbalances.
The ECB has made any buying of government bonds under the programme conditional on the country concerned tapping the euro zone rescue fund for aid. That would come with strict conditions - a move aimed at calming German fears about the ECB’s strategy.
Bundesbank President Jens Weidmann was the only Governing Council member voting against the new programme, which he regards as being tantamount to financing governments by printing banknotes.
Coeure said far from fuelling inflation, the plan would have the opposite effect.
“OMTs (Outright Monetary Transactions) will be conducive to the monetary authority restoring its power to control credit conditions in the euro area and, through that channel, inflation in the medium term,” he said.
Coeure stressed that the ECB was committed “to do whatever it takes to comply with its mandate of maintaining price stability”.
Reporting by Eva Kuehnen; Editing by Ruth Pitchford