(Bloomberg) --
The European Central Bank must withdraw emergency support when the economy has recovered from its pandemic shock, Governing Council member Jens Weidmann said in a speech that underscores his reputation as one of the institution’s most-hawkish policy makers.
It has always been important that the 1.35 trillion-euro ($1.6 trillion) emergency bond-buying program is “limited in duration and clearly linked to the crisis,” said Weidmann, the head of Germany’s Bundesbank.
His comments, a week before the ECB’s next policy meeting, feed into a debate over how quickly the central bank will ultimately need to pare back its extraordinary support. While he was cautious on the pace of the recovery so far, his tone differs from that of ECB chief economist Philip Lane who has stressed that the Governing Council will do more if needed.
“After the crisis, the emergency monetary-policy measures must be scaled back again,” Weidmann said during a virtual event on Wednesday evening. And “if the price outlook so requires, then monetary policy as a whole must be normalized,” he said, as risks and side effects “can increase over time.”
In Lane’s view, the ECB won’t be done with stimulus even when the economy has put the worst of its crisis behind. He argued that the next step after countering the immediate shock lies in fueling inflation.
In the wake of the pandemic, the ECB has made unprecedented bond purchases and loan offers to banks to stabilize financial markets and keep credit flowing to the region’s companies. While that’s prevented an even deeper slump, the economic hardship is far from over.
Weidmann warned that strong growth over the summer months in his native Germany “should not stir up false hopes.” Instead, “the recovery of our economy will drag on.”
Executive Board member Isabel Schnabel, who like Weidmann is from Germany, has said she sees no reason to change policy at this point given the economy is evolving in line with expectations.
“There could be surprises, both on the upside and the downside, which may mean that we have to reconsider our monetary-policy stance,” she said in an interview published Monday. “But at the moment, that’s not on the cards.”
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