As former central bankers and as European citizens, we are witnessing the ECB’s ongoing crisis mode with growing concern. The ECB has pursued an extremely accommodative policy for years of economic growth and price stability. The recent slowdown in economic activity, although regarded as temporary by the ECB itself, and risks due to Brexit and the trade war, have prompted the ECB to resume net asset purchases and further reduce the already negative deposit rate. Moreover, the ECB has committed itself to pursuing this extremely accommodative path for quite some time yet.
Our concern relates in particular to the following aspects of monetary policy.
A decade ago, the ECB’s monetary policy made a significant contribution to overcoming the severe recession and consolidating growth thereafter. However, the longer the ECB stays its extremely accommodative path, the more the negative effects prevail. Interest rates have lost their steering function and financial stability risks have increased. The longer the ultra-low or negative interest rate policy and liquidity flooding of markets continue, the greater the potential for a setback. Should a major crisis strike, it will be of very different dimensions than those we have seen before. Like other central banks the ECB is threatened with the end of its control over the creation of money. These developments imply a high risk for central bank independence – de jure or de facto. •
– Herve Hannoun, former first deputy governor of the Bank of France
– Otmar Issing, former member of the ECB’s Executive Board
– Klaus Liebscher, former governor of the Austrian central bank
– Helmut Schlesinger, former president of Germany’s Bundesbank
– Juergen Stark, former member of the ECB’s Executive Board
– Nout Wellink, former governor of the Dutch central bank
– Jacques de Larosiere, a former governor of the Bank of France, shared the judgment.
Quelle: Bloomberg News
from 4 October 2019
Notes of the editors:
1 Contradictionary monetary policy comprises all measures which – in contrast to quantitative easing – reduce the amount of money in circulation. As a result, banks can grant fewer loans, interest rates rise, demand for loans decreases, which also leads to a decline in investment and production. In this way inflation is to be contained. The emergence of liquidity bottlenecks, which could destabilise the banking sector, is seen as a danger.
2 According to the ECB: The targeted longer-term refinancing operations (TLTROs) are Eurosystem operations that provide financing to credit institutions. By offering banks long-term funding at attractive conditions they preserve favourable borrowing conditions for banks and stimulate bank lending to the real economy.
The TLTROs, therefore, reinforce the ECB’s current accommodative monetary policy stance and strengthen the transmission of monetary policy by further incentivising bank lending to the real economy. (www.ecb.europa.eu/mopo/implement/omo/tltro/html/index.en.html)
3 Forward Guidance of the ECB: The ECB is providing information about its future monetary policy intentions, (vgl. www.ecb.europa.eu/explainers/tell-me/html/what-is-forward_guidance.de.html)
mw. The Governing Council is the supreme decision-making body of the European Central Bank. It comprises the six members of the Executive Board and the Presidents of the National Central Banks of the 19 member states of the Euro currency area. In mid-September, this body once again decided to continue the monetary policy of quantitative easing, negative interest rates and disclosure of the ECB‘s plans far into the future. Several members of the Council disagreed with the continuation of this monetary policy, where the effectiveness has not been proven, but its negative side effects (discrimination against savers, in particular pension funds) are considerable. This is nothing new in itself. What is unusual is, that the representatives of Germany, Austria, the Netherlands and France, with their dissenting opinions, made them public. Since the current members of the Governing Council have a duty of secrecy, six former members of the Council from the countries concerned wrote the memorandum published here.
Source: Finanz und Wirtschaft, from 19 October 2019
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