Most European Central Bank policy makers judged that buying government debt was the only option big enough to fight the threat of deflation when they met last month, an official account of the debate shows.
The Governing Council decided on Jan. 22 to start a €1.1 trillion ($1.3 trillion) asset-buying plan because existing programs “would fall short in quantitative terms,” according to the 18-page summary, the first time the ECB has published such a document. “Sovereign debt appeared to be the only remaining instrument of sufficient scope to provide the necessary monetary stimulus.”
Led by President Mario Draghi, the ECB is releasing accounts of its monetary-policy meetings in a revamp of its communications strategy. The approach carries risks for an institution that requires officials to act on behalf of the entire 19-nation currency bloc rather than their home states.
While the accounts don’t attribute views to individuals, they could still harden the stances of members from widely diverse economies. The ECB has avoided revealing the views of governors so they don’t come under domestic political pressure that could influence their decision-making.
Germany led opposition to quantitative easing, with Bundesbank President Jens Weidmann and Executive Board member Sabine Lautenschlaeger speaking against it both before and after the Jan. 22 meeting. While they weren’t named in the document, those arguments were represented in detail.
“A number of considerations in favor of maintaining a wait-and-see stance at the current meeting were advanced by some members,” according to the report. They saw “contained” risks of second-round effects from low euro-area inflation, and enough monetary-policy accommodation already in the pipeline. Sovereign QE should be “used only as a last resort in the event of an extremely adverse scenario.”
In contrast, Executive Board member Peter Praet, the ECB’s chief economist, said “the risk of second-round effects had increased further and, with it, the risk of too prolonged a period of too-low inflation.” Lack of action would have led to “unwarranted tightening in the monetary-policy stance.”
Praet and Executive Board member Benoit Coeure, who is responsible for market operations, were the only named Governing Council members whose views were given, as the account summarized their presentations.
Praet proposed buying €50 billion a month of assets until the end of 2016, the report showed. That was increased to €60 billion a month through September 2016 because of “broad support” for the “front-loading” of purchases.
While corporate bonds were considered, it was “widely judged” that the size of the market offered “limited scope for providing the degree of accommodation needed,” the document showed.
The ECB’s account is less explicit than at other major central banks. The Federal Open Market Committee, the Bank of England’s Monetary Policy Committee and the Bank of Japan all publish the votes of individual policy makers at meetings.
In the minutes of its February meeting published on Wednesday, the BOE said that while all officials voted in favor of maintaining the policy stance, two members saw the decision as “finely balanced.” The FOMC and BOJ indicate the level of support for specific arguments in discussions with phrases such as “many” or “a few” participants.
Summaries of the ECB’s two non-monetary policy meetings in each six-week cycle will not be issued, and the full minutes of all discussions will continue to be kept secret for 30 years.
“Now that people know what they say is for the record, there might be some who are more careful on how they state their position, but others will also want to make their case more forcefully,” Thomas Harjes, senior European economist at Barclays Plc in Frankfurt, said before the release. “More transparency is always welcome.”