The European Central Bank (ECB) shouldn’t rush into implementing massive bond-purchase programs in the future, the head of the German central bank warned in an interview with CNBC Wednesday.
The 19-country region launched a quantitative easing package — a massive stimulus program — back in 2015 to prop up the moribund economy following the sovereign debt crisis. The active bond-buying ended in December last year, but throughout its existence there was running opposition, saying it was dragging on for too long.
“I have always argued that for me, the purchase of sovereign debt is a very special instrument,” Jens Weidmann, the president of the Bundesbank, told CNBC’s Julianna Tatelbaum Wednesday.
“Especially in the context of a monetary union, where you have one monetary policy but 19 independent fiscal policies and, the danger of communitizing fiscal debt is very different from that of the U.S. or Japan,” he added.
In the euro zone, the ECB is responsible for setting monetary policy that is supportive of the 19 member nations. However, each country is able to dictate its own spending measures. As a result, there are countries that follow more conservative fiscal targets, whereas others are often in breach of the area’s fiscal rules.
Setting up a common monetary policy is therefore difficult given the disparities across the region. This is in contrast to the United States, for example, where both the monetary and fiscal rules apply to the entire country.
“So in that sense, for me it is an emergency measure for the case of looming deflation, for instance,” Weidmann, who is also a member of the ECB’s executive board, said in reference to a period of declining prices for goods and services.
The euro zone economy saw promising growth in the years after the stimulus measures. But more recently, a deceleration in Germany and global trade tensions have raised questions as to whether the central bank would need to take further action to help the region in the near future.