–First Ran On Mainwire At 1723 GMT/1323 ET Wednesday
FRANKFURT (MNI) – Bundesbank President Jens Weidmann is not calling
for an immediate reversal of the European Central Bank’s crisis
measures, but he is certainly trying to expedite the process by pushing
the debate about an exit strategy onto the agenda.
Weidmann on Tuesday sought to downplay the notion of a disagreement
among ECB policymakers after a leaked letter from the Bundesbank chief
to ECB President Mario Draghi, expressing concerns about the potential
side effects of current policies, fueled media reports of a rift between
the Governing Council’s two most powerful men.
“All council members are aware that non-standard measures create
risks and have to be unwound,” Weidmann said during a press conference.
“We need this discussion and it is taking place.” He repeatedly stressed
that he is not isolated on the Governing Council because of his views.
“That does not mean all crisis measures must be immediately
withdrawn, but that we as central bankers [must] have an idea how we
will organize and implement an exit strategy,” Weidmann said.
The ECB has injected more than E1 trillion worth of three-year
loans into the banking system at a mere 1%, and it is applying
unprecedentedly loose collateral rules. In the process, the ECB’s
balance sheet has ballooned to over E3 trillion.
Weidmann is particularly concerned about weaning addicted banks off
ECB liquidity and ensuring that the central bank lends only against
sound collateral. The ECB must not artificially keep ailing banks alive;
rather, national fiscal authorities should recapitalize or close down
such institutions, he said.
In that sense, there is indeed no disagreement on the Governing
Council. Ever since non-standard policies were introduced under former
ECB President Jean-Claude Trichet, the central bank has stressed that
the measures are “temporary,” that the ECB can lend only to solvent
institutions, and that governments and banks must work to strengthen the
banking sector.
Weidmann has dropped the idea of studying options to limit the
risks to the Eurosystem associated with the cross-border payment system
Target 2 ECB, thus bringing him in line with the Eurotower. He conceded
Tuesday that Target 2 imbalances are only a reflection of real-world
problems and should be addressed in the real world.
So the sole difference between Weidmann and the ECB Executive Board
— though a substantial one — appears to be about timing. Weidmann
would not commit to a timeframe, noting it will depend on the
environment. But his active and public role in lobbying for a debate
about ending the ECB’s non-conventional policies leaves little doubt
that he is keen to see some first steps towards the exit in the
foreseeable future.
The Bundesbank is concerned that keeping crisis measures in place
for too long won’t solve the crisis but will actually stand in the way
of a sustainable end to it by postponing the action by governments and
banks that is needed to restore a healthy banking system.
The Eurotower, on the other hand, appears to favor a slower
approach, given the still-fragile situation. “It is too early to decide
on an exit strategy…I would say that the time is not ripe now,”
Executive Board member Benoit Coeure said earlier this week in a
newspaper interview.
Though widely criticized, Weidmann’s public pressure, feeding
speculation about disagreements on the Council, may not be such a bad
thing. By raising the prospect of a world without cheap and plentiful
ECB cash, he is acting as the bad cop and putting pressure on
governments to finally fix their weak banks.
The more successful he is, the sooner the ECB will be able to
withdraw support from the banking system. In the meantime, the good cops
at the ECB will be cautious not to repeat the mistake of a second
premature exit.
–Frankfurt newsroom +49 69 72 01 42; e-mail: jtreeck@marketnews.com
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