ECB should not extend stimulus flexibility to older tools: Weidmann

ECB should not extend stimulus flexibility to older tools: Weidmann

© Reuters. FILE PHOTO: German Bundesbank President Jens Weidmann attends the 29th Frankfurt European Banking Congress (EBC) at the Old Opera house in Frankfurt, Germany November 22, 2019. REUTERS/Ralph Orlowski

BERLIN (Reuters) – The European Central Bank can hopefully reduce emergency stimulus soon and should not transfer the extraordinary flexibility of its crisis-fighting measures to its more standard tools, German central bank chief Jens Weidmann told German newspaper Handelsblatt.

The ECB last week decided to maintain an elevated pace of bond buys over the coming quarter, despite a stronger-than-expected rebound in growth, fearing that higher borrowing costs could choke off the recovery.

But some policymakers are already making the case for a discussion in September on how and when to phase out the 1.85 trillion euro ($2.2 trillion) Pandemic Emergency Purchase Programme as the bloc is quickly recovering.

“With further progress in coping with the pandemic, hopefully the crisis-related special measures will soon be reduced,” Weidmann told Handelsblatt.

He said that by next year there should be no unusual capacity underutilisation and such a situation could no longer be classified a crisis, meaning the justification for the emergency measures would be gone.

“When the emergency for which the PEPP was created is over, it must be ended,” Weidmann, one of the most conservative members of the 25-member Governing Council, was quoted as saying.

Some policymakers argued that even if PEPP is ended next March as currently scheduled, the ECB could transfer some of its exceptional flexibility to a standing Asset Purchase Programme, so it could still provide the necessary accommodation.

Weidmann rejected that suggestion, arguing that the APP has a different purpose and must be kept separate.

“When this exceptional situation is over, such a high degree of flexibility is no longer appropriate,” he said.

($1 = 0.8397 euros)

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