ECB Weidmann:MonPol Remains Accommodative, Must be Normalized
FRANKFURT (MNI) – The European Central Bank’s monetary policy
stance still remains accommodative and will need to be normalized,
European Central Bank Governing Council member Jens Weidmann said in an
interview with German daily Frankfurter Allgemeine Zeitung released on
Weidmann once more stressed his opposition to a restructuring of
Greek debt and reiterated that the ECB would not accept Greek bonds as
collateral in its refinancing operations should their maturity be
extended in an effort to do a soft restructuring.
“Monetary policy remains expansive. Therefore, we have two tasks
ahead of ourselves: the normalization of non-standard measures and the
normalization of the interest rate, which remains expansive,” Weidmann
The head of the Bundesbank would not comment on market speculation
about an interest rate of 1.75% by year’s end. “I will leave it at the
remark that the current monetary policy course remains expansive,” he
Weidmann noted that the ECB remains concerned that higher commodity
prices could spur second-round effects in the Eurozone, although thus
far there are no signs of a wage-price spiral.
Long-term inflation expectations are also a cause for concern and
are closely monitored, Weidmann said. The latest ECB Survey of
Professional Forecasters showed that 50% of participants expect
inflation to run ahead of target.
Although the Bundesbank is not “per se” opposed to a restructuring
and certainly not to the participation of private creditors, Weidmann
affirmed, pointing out that the ESM foresees a participation of the
“The consequences, however, of fiscal policy errors may not, as a
basic principle, be shifted onto the central banks,” Weidmann asserted.
He reiterated that the ECB would no longer be in a position to accept
Greek debt in its refi operations should there be any form of
“This would ultimately amount to a monetization of government
debt,” he explained, and to this the Bundesbank is “very decidedly”
opposed. Monetary and fiscal policy must remain cleary separate areas of
responsibility, he demanded.
Weidmann dismissed speculation that the ECB is just bluffing with
the threat of cutting Greek banks off of the central bank’s liquidity
provision in case of restructuring.
“For monetary policy, the quality of collateral is a central
question. It is thus no threat when we say that in the future as well,
we will pay attention to the adherence to the framework agreed on for
European monetary policy,” he said.
In any case, Weidmann said a soft restructuring would send “the
wrong signal” to indebted countries and further undermine confidence in
the soundness of Eurozone national fiscal affairs.
This could cause problems for the banking systems in other Eurozone
member states, Weidmann said. “Here too, it seems to be expected that
the central banks will again step into the breach,” he said. “We point
out these risks and set a limit for monetary policy.”
Weidmann also doubted the potential benefits of lengthening
maturities of Greek bonds held by private investors.
Much of the risk is already publicly held, he argued. It is thus a
reasonable question whether the cost of lengthening the maturities of
Greek debt would be sufficiently borne by private creditors, he said. In
addition, he reasoned, such a lengthening would only improve
sustainability in a “very limited” way, he said.
Weidmann urged that Greece implement the consolidation program as
agreed and that the plan not be made less strict. Should the EU/ECB/IMF
troika find that Greece is not on track with its reform efforts,”it is
the responsibility of Greece to immediately make appropriate
adjustment,” he said.
Turning to the German economic recovery, Weidmann said that the
strong performance of the first quarter was in part driven by catch-up
effects. “We nevertheless believe that the recovery can last for some
time to come, although not at the same rate as in the first quarter.”
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