Germany Speaking against ECB’s Quantitative Easing

Written by | Tuesday, January 6th, 2015

Michael Fuchs, a senior member of Angela Merkel’s Christian Democrats, said that the European Central Bank (ECB) should not pursue its quantitative easing (QE) by purchasing bonds of struggling eurozone states. Mr Fuchs thinks that such bond purchases will only encourage these economies to postpone the introduction of necessary reforms. “We shouldn’t pump extra money into these states, but rather make sure they continue along the reform path,” he said. “I’d be grateful if (ECB President Mario) Mr Draghi would make statements along these lines,” Mr Fuchs added.

Mario Draghi, said already earlier in an interview with German financial daily Handelsblatt that politicians should focus on implementing much-needed reforms, reducing tax burden, and cutting red tape to support a delicate eurozone recovery. Mr Draghi added that the risk of the ECB not meeting its price stability goal was higher now than six months ago and reminded that the central bank was ready to act very soon if needed. Government bond purchases are among the measures that the ECB is considering.

Eurozone has not yet overcome the risk of deflation so the ECB is increasingly getting under pressure to intervene again. Some expect that the ECB will soon begin with money-printing to purchase government bonds, a tool known as quantitative easing (QE). QE is seen by many as one of the last measures that the central bank can use to revive inflation as the ECB has already pushed its key interest rate to the record low of 0.05 percent. Mr Fuchs said that he expected a fierce discussion over the possibility of introducing QE, referring to the opposition by the head of the Bundesbank, Jens Weidmann, to the proposed bond-buying.

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