By Mehreen Khan at The Telegraph
Germany’s powerful central bank chief has said quantitative easing is no longer appropriate for Europe, putting Berlin on a collision course with the European Central Bank over expanding stimulus measures to revive the single currency area.
Jens Weidmann, head of the Bundesbank and a member of the ECB’s governing council, said QE was “no longer necessary” for the eurozone, despite the widespread expectation that more stimulus will be announced as early as next month.
However, Mr Weidmann defended the ECB’s bond-buying scheme – launched in March last year – at a hearing at the German Constitutional Court on Tuesday, arguing that it did not contravene the principles of the German constitution.
But his resistance to expanding QE suggests the ECB’s hawkish members are hardening in their stance against expanding the stimulus programme from its current €60bn a month.
Crucially, Mr Weidmann will not be able to take part in the March vote under the ECB’s rotating voting rules.
The Bundesbank chief’s position is in stark opposition to that of ECB president Mario Draghi, who has repeated the central bank’s willingness to “do its part” to revive inflation and growth in the bloc as turmoil has engulfed global markets this year.
The Italian’s failure to ramp up QE in December sent markets into a tailspin and has helped European equities plunge by as much 13pc this year.
Mr Weidmann was speaking as a witness in front of Germany’s powerful constitutional court in Karlsruhe on Tuesday.
The court – which has the power to strike down EU laws it deems incompatiblewith Germany’s supreme federal constitutional law – was meeting to consider the legality of the ECB’s landmark Outright Monetary Transactions scheme (OMT), first announced in 2012.
Prime Minister David Cameron has looked to the institution as a model for Britain as part of its new settlement with Europe.
Mr Weidmann has been a vociferous opponent of OMT, which acts as a financial backstop for the euro’s distressed debtors but has never been deployed, arguing that it represents the illegal financing of government debt.
But he refrained from repeating his criticisms on Tuesday, saying only that the QE measures were less “problematic” than the more ambitious OMT.
ECB board member Yves Mersch said OMT was devised to “confront an extraordinary crisis situation” when the future of the eurozone was in doubt.
“This crisis situation was characterised by massive distortions of the government bond market that developed their own momentum,” said Mr Mersch.
“This in turn led to a disruption of the monetary policy transmission mechanism, which posed a threat for price stability.”
The German court is not expected to make a formal ruling until later in the year.