An improving euro-area economy shows the European Central Bank’s government bond-purchase program isn’t needed, Governing Council member Jens Weidmann said.
“I remain unconvinced that the macroeconomic situation really warrants” quantitative easing, Weidmann, who heads Germany’s Bundesbank, said at the release of the institution’s annual report in Frankfurt on Thursday. “One especially problematic aspect is that the massive government-bond purchases will make the Eurosystem central banks the biggest creditors of the euro-area member countries. Fiscal policy and monetary policy will become even more closely entwined.”
The Bundesbank, as part of the 19-nation system of European central banks, started buying its quota of bonds this week in the ECB’s 1.1 trillion-euro ($1.2 trillion) asset-purchase plan. While Weidmann has argued against the need for extra stimulus, his institution is responsible for carrying out the largest national portion of the purchases.
The Bundesbank said in its annual report that profit for 2014 fell to 2.95 billion euros from 4.59 billion euros in 2013 because of lower interest income. It kept its risk-provision account unchanged at 14.4 billion euros.
“The key interest-rate cuts in June and September 2014 have led to a decline in the anticipated annual result for 2015,” Weidmann said in the report. “Nonetheless, risk provisions remain high because, amongst other things, the ECB Governing Council’s decision to launch new asset-purchase programs gives rise to additional credit risks.”
The Bundesbank said that “expansionary forces now appear to be gaining the upper hand” in some of the euro-area countries hit hardest by the crisis, and that the region as a whole should display higher economic growth on the back of better international trade, lower financing costs, and lower energy prices.
The report said the German economy should grow “beyond its normal capacity utilization” this year and “perhaps even more strongly in 2016.”