By Stefan Riecher and Rainer Buergin
European Central Bank Governing Council member Jens Weidmann said targeting the amount of assets owned by the ECB is a risky endeavor.
“It worries me quite a bit, there’s a risk related to the announcement of a balance-sheet target, together with the two purchase programs,” Weidmann, who heads Germany’s Bundesbank, said in Washington late yesterday. The danger is “that we’ll buy these assets overpriced,” he said.
Weidmann was one of at least three governors who opposed the ECB’s decision this month to start buying asset-backed securities before the end of the year. The purchase plan is part of a range of stimulus measures by the Frankfurt-based central bank which ECB President Mario Draghi has signaled will increase the balance sheet by about 1 trillion euros ($1.3 trillion)
Buying assets too expensively “would be a risk transfer from banks’ balance sheets to the central bank’s balance sheet,” Weidmann said.
His comments demonstrate the lack of a common front in euro-area policy making after economic growth came to a halt in the second quarter. The IMF estimates there is as much as a 40 percent risk of a third recession since 2008 in the 18-nation currency bloc.
Also speaking in Washington yesterday, Draghi reiterated that policy makers stand ready to deploy further stimulus if necessary and to “alter the size and/or composition of our unconventional interventions, and therefore of our balance sheet, as required.”
Since June, the ECB has cut interest rates twice, started a targeted loan program for banks to jumpstart lending and announced purchases of asset-backed securities and covered bonds. That leaves buying of government bonds as the most likely option remaining if the economy slips further toward deflation.
“Ultra-loose monetary policy doesn’t come without risks,” Weidmann said. “The risk appetite in financial markets has increased.”