The former Bundesbank president, Axel Weber, said on Thursday that the zero-interest, quantitative easing monetary policies of the European Central Bank had become ineffective, and that new answers were needed.
“All operators in the financial markets have a far too short-sighted focus today and I no longer exclude the central banks from that,” he told the Handelsblatt Banking Summit in Frankfurt. “Monetary policy has very strongly deteriorated into a repair shop for the state and financial markets.”
The ECB’s sword of monetary policy, the tools it uses to try to stimulate economic growth in the 19-country zone, had become “blunt,” Mr. Weber, the chairman of Swiss bank UBS, said.
“In a world of zero or negative interest rates, monetary policy only works via its influence on the capital markets or the exchange rate, meaning indirectly,” he said. “That’s why it requires ever larger operations by the central banks to achieve the same effect as in the days when monetary policy still worked via the interest rate channel or the credit channel.”
Mr. Weber resigned as Bundesbank president in 2011 in a dispute over the ECB’s handling of the euro debt crisis. He criticized the Frankfurt-based central bank for buying sovereign bonds of crisis-hit nations to keep their yields in check and enable nations to keep on refinancing themselves.
The ECB’s policy of large-scale bond purchases and rate cuts have sparked criticism from German officials and bankers who say its discouraging governments from maintaining fiscal discipline, penalizing savers and failing to boost economic growth, its primary goal.