'Europe missed chance to fix economy': Weber
Europe has squandered three years of opportunity to carry out badly needed economic reforms, former Bundesbank chief Axel Weber said in Davos on Wednesday, warning the ECB against taking too much action to compensate for governments' failure to act.
The European Central Bank has come to the rescue of the eurozone on several occasions since Greece nearly dragged down the bloc with its debt, with the bank unleashing an arsenal of unconventional measures since late 2011 to calm jittery markets.
However, growth remains sluggish, unemployment is stubbornly high and the eurozone is now in danger of sliding into deflation, forcing the ECB to consider deploying yet another unusual measure — this time the massive purchase of sovereign debt.
"The real issue is the ECB has continuously bought time for European policy makers to fix the issue," Weber said.
But "they didn't do that" in the past few years.
"Now Europe's not back, the problems are back. Now you have to (carry out the reforms) under the scrutiny of the international financial markets.
"Europe has lost the good opportunity to do many necessary things they could have done in a more benign environment."
Weber also urged European central bankers to consider if it is time to pull the plug on aid to boost growth in the bloc, saying that governments should not pass the buck.
"The ECB can only be part of a fix in Europe. In my view they shouldn't go too far because the more they do, there is the incentive for governments to do less.
"And the problem is if you continue to buy time and the time is not used for reforms, you have to ask yourself if more of the same is the best recipe," he said.
The ECB was modelled after the once mighty Bundesbank, reputed for its unflinching anti-inflationary stance.
But as the eurozone crisis unfolded and deepened, the Bundesbank's imprint on the institution began to fade.
Weber quit in 2011 because of unease over the bank's looser monetary policies.
Clash of views
But not everyone shares his views.
Adam Posen, the former central banker who sat on the policy committee of the Bank of England for three years, told AFP the threat of deflation was too great to be ignored any longer.
"What's dangerous are the people who oppose QE, who I think are wrong, are trying to make sure QE fails," said Posen, who was a major proponent of QE at the BoE.
"We are very late in the game and I'm very concerned that Germany is going to keep the QE from as being as aggressive as they need it to be," Posen said.
Germany's aversion to the plan was also borne out in remarks by the ECB's former chief economist, who also resigned angrily after the bank accepted unconventional measures.
The European Central Bank "wants to drive down the refinancing costs of individual countries," Jürgen Stark told the business daily Handelsblatt.
"That is very different from traditional monetary policy."
To placate Germany's opposition, reports from Berlin say the ECB has devised a bond-buying programme that will cater to their deep reservations about QE.
The news magazine Der Spiegel reported on Friday that ECB chief Mario Draghi presented this scheme to Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble aimed at allaying such concerns.
Under the revised scheme, only national central banks will be allowed to buy the sovereign debt of their respective countries.
Crucially, Germany, Europe's paymaster, will not be on the hook to bail out another country, the magazine said.
Kenneth Rogoff, the IMF's former chief economist, said if confirmed this step was politically necessary but would falter in the longer-term.
"Even if (the ECB) makes the national banks hold debt I think they'll see it doesn't work as well and they'll go to something else," Rogoff told AFP.
"I think it is part of a long process to get (QE) to work and it's a major step," he said.
"It's the first vague step towards the mutualization of debt."
Germany is increasingly singled out on the global stage for its resistance to looser monetary policy, with even China's top central banker lending his support to Draghi.
"I agree with Mario Draghi," said Zhou Xiaochuan.
"Monetary policy may create room, a time period for other policies to come out, to be implemented."
While a policy such as QE "is not a panacea . . . it is still useful," he said.