Former European Central Bank Chief Economist Juergen Stark said policy makers didn’t expect banks to borrow so much in their three-year loan operations.
“Nobody had expected the dimensions of this program,” Stark said in an interview with Bloomberg Television in Cernobbio, Italy, today. While it was appropriate to consider these operations, the ECB is now on the hook for three years and it will take time to shrink its balance sheet, he said.
The ECB lent banks more than 1 trillion euros ($1.3 trillion) in two three-year operations that have calmed financial markets and won governments time to address the region’s debt crisis. ECB policy makers also cut the benchmark interest rate in November and December, taking it back to a record low of 1 percent.
“In my view, one rate cut was sufficient,” said Stark, who left the Executive Board prematurely at the end of 2011. “I didn’t want to go to 1 percent. We have seen so far that the inflation rate has remained at a higher level than expected.”
Stark resigned over the ECB’s bond-purchase program, which has since been halted after banks used some of the three-year cash to buy the sovereign debt of countries like Italy and Spain. While Stark said the loans are “closer to the mandate of the ECB” than bond purchases, he has criticized the quality of the collateral the ECB is accepting from banks in return for the funds.
“The final step taken by the ECB to soften the collateral rules was taken after I had left,” Stark said.