European Central Bank Governing Council member Christian Noyer said rejecting the ECB’s new bond-purchase tool is akin to opposing price stability, as his colleague Jens Weidmann suggested concern on the program isn’t limited to him.
“If we are unable to avoid deflation because our monetary policy has no grip on the economy, we cannot fulfill our mandate, we are completely paralyzed,” Noyer, governor of the French central bank, said in Madrid yesterday. “Simply from that I take the conclusion that being against the OMTs today is being against price stability, it is as simple as that.”
Noyer’s remarks signal persisting disagreement on the central bank’s signature crisis-fighting tool after ECB President Mario Draghi suggested in September that opposition to any action would have been dangerous. Weidmann, the sole voter on the Governing Council against so-called Outright Monetary Transactions, suggested yesterday he wasn’t isolated.
“Of course there are other colleagues as well who worry” about the consequences of the program, Weidmann said at an event in Berlin. “This discussion and these concerns reflect in the conditionality we implemented.”
The ECB is fighting to gain support for its bond-buying program in Germany, where some voters are concerned the purchases might stoke inflation. Draghi has tried to ease opposition by saying price stability remains the ECB’s primary goal and that inflation will fall below 2 percent next year.
ECB officials will “make sure we will never be caught off guard, we offset the liquidity, we sterilize liquidity all the time,” Noyer said. “The inflation risk is absolutely none.”
“We must never forget price stability” has always referred to deflation risks as well as inflation risks, he said. “If there is no proper transmission there is a risk of deflation.”
Draghi pledged to do whatever it takes to save the euro in July and introduced the bond-buying program on Sept. 6. Weidmann is the only member of the ECB’s Governing Council who voted against the plan, saying it is tantamount to printing money to finance governments.
A German group of 5,217 plaintiffs sued the ECB over its proposal to buy unlimited bonds from debt-laden countries to regain control of interest rates. The lawsuit was filed with the European Union General Court, the 27-nation EU’s second-highest tribunal, on Nov. 12.
Weidmann’s concerns were “vital” to the design of the OMT, ECB Chief Economist Peter Praet told Germany’s Handelsblatt newspaper last month. The ECB will only buy bonds if a country signs up to budget consolidation and structural reforms, he said.
ECB Governing Council member Jozef Makuch said on Nov. 14 he’d prefer the ECB not to have to use the OMT and doesn’t see any need for any new tools for now.
The ECB’s plan has helped financial markets rally and brought down Spanish and Italian bond yields. Investors are now waiting for Spain to request aid from Europe’s bailout fund, one of the prerequisites for the ECB to intervene in debt markets.
Noyer said the ECB will leave setting the conditions to the European bailout fund, called the European Stability Mechanism, and the International Monetary Fund.
“They are equipped to do that, they are legitimized to do that,” he said. “We don’t want to interfere.”
Noyer said he does not expect any euro-area central bank not to buy bonds, once a country has asked for aid and the ECB has agreed to trigger the bond purchases.
“I have no doubts all the 17 national central banks of the ECB will execute when the ECB gives the green light,” he said. “There is no example since the beginning of the euro that any national central bank has not executed measures decided by the Governing Council of the ECB, whatever the position of its governor in the council was.”
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