ECB's Weidmann Says Clear Endpoint for Bond Buys Necessary

By Christian Vits

     FRANKFURT (MNI) - German Governing Council Member Jens Weidmann on Friday

sharply criticised yesterday's European Central Bank decision to trim its asset

purchase program without determining an endpoint.

     "From my point of view, a clear endpoint for net asset purchases would have

been required, especially as I am very critical of government bond buys in a

currency union," Weidmann said in a speech in Paris. 

     "Such buys blur the borderline between monetary and fiscal policy," he

added.

     The ECB on Thursday decided to extend the bond-buying program for nine

months and halve its purchases from the current Euro 60 billion per month to

Euro 30 billion, effective from the start of next year. 

     ECB President Mario Draghi argued that there is still "a large amount of

uncertainty" and added that the decision "is for an open-ended program and it is

not going to stop suddenly."

     The "large majority" of the Governing Council expressed its preference to

keep it open-ended, he said. Apparently Weidmann was among the "few" dissenters

Draghi mentioned, preferring an intended end date of the balance sheet

expansion.

     "Given the rather subdued acceleration of prices an expansive monetary

policy in the euro area still is appropriate," Weidmann noted. "But there can be

different opinions on how much you open the throttle and which instruments

should be used."

     He added that even after the expiration of the net asset purchases monetary

policy "will remain very expansionary." According to Weidmann, the decision not

to increase interest rates before the bond buys have ended means, "we are not

talking about standing on the brakes with monetary policy, we are talking about

not to further open the throttle."

     Against the background of the continuing and increasingly broad-based

upswing "this is also not necessary from my point of view," he stressed. 

     "According to our forecasts the output gap will be closed next year and in

the short-term the economy could even grow more dynamically than expected so

far," he said.

--MNI Frankfurt Bureau; +49 69 97782671; email: christian.vits@marketnews.com

[TOPICS: M$X$$$,M$$EC$]