Marking a departure from tradition, Germany’s new appointee to the ECB had defended easy-money policy
Germany’s new appointee to the European Central Bank’s board, Isabel Schnabel, defended the ECB’s easy-money policy on Tuesday, saying that the euro zone would be been worse off without it and it was up to others to counter the side effects.
Her words marked a departure from German central bankers’ long-held scepticism toward the ECB’s ultra-aggressive stimulus policy of sub-zero rates and massive bond purchases, which has caused two of her predecessors to resign in recent years.
In the absence of these monetary policy measures, the euro area’s development would have been much weaker, Schnabel told an audience in Karlsruhe, Germany. A fundamental departure from (current ECB) policy does not seem appropriate.
Schnabel has pledged to fight anti-ECB sentiment in her home country since she joined its Executive Board on Jan. 1, replacing Sabine Lautenschlaeger, who had resigned after disagreeing with the latest ECB rate cut and bond purchases.
Jens Weidmann, the head of Germany’s Bundesbank, once testified against one ECB bond-buying scheme before Germany’s top court.
Schnabel stigmatized “claims and accusations that have no basis” and sought to pick apart the argument that the central bank is expropriating German savers while fuelling bubbles in stocks and property.
One of her arguments was that property prices in Europe’s largest economy were at around the same level that they had been in 1990, once they were adjusted for inflation.
What’s more, she argued, it was “primarily up to other policymakers”, from governments to financial watchdogs, to tackle the side effects of the ECB’s policy on the distribution of wealth and on financial stability.
Distributional issues lie in the remit of fiscal and social welfare policy, she said. And containing risks in the financial system is a task for financial market regulators and supervisors.
She conceded, however, that rate-setters should also weigh the pros and cons of their actions, and said the ECB would tackle the topic as part of a review of its strategy this year.