ECB Minutes Show Lagarde Will Inherit a Fractured Institution -- Update
10 October 2019 - 2:39PM
Dow Jones News
By Tom Fairless
Top European Central Bank officials squabbled over key elements
of the bank's latest monetary stimulus package, according to
minutes of the meeting, underscoring the challenge facing incoming
President Christine Lagarde to heal internal fractures and support
the region's faltering economy.
The ECB last month rolled out a sweeping set of stimulus
measures that included interest-rate cuts and an open-ended
EUR20-billion-a-month ($21.9 billion) bond-buying program.
The decision to restart bond purchases, which were only phased
out last December, was opposed by at least seven top ECB officials,
as well as by an internal ECB committee tasked with evaluating its
monetary-policy strategy. The ECB's top German official, Sabine
Lautenschläger, said last month she would leave the bank two years
early after opposing fresh bond purchases, known as quantitative
easing, or QE.
The minutes of the ECB's Sept. 11-12 meeting lay bare the
dispute, which centered on QE but also extended to other policy
tools including interest-rate cuts.
"A number of members" of the ECB's rate setting committee
opposed the decision to restart QE, arguing that it should be used
only as a last resort, or that it was no longer effective because
eurozone bond yields were already so low, according to the
minutes.
At least one ECB official warned that restarting QE could create
appetite among investors for even more bond purchases, which could
exhaust the supply of eligible debt that the ECB could buy.
Expanding that pool of debt could raise fresh concerns around the
legality of the QE program, which faces lawsuits in Germany.
Some ECB officials called for an interest-rate cut larger than
the 0.1-percentage-point reduction agreed last month, which took
its key interest rate to minus 0.4%, according to the minutes. But
others opposed even a 0.1-point cut, warning of increasingly
adverse side effects from negative interest rates.
A number of officials also expressed reservations about the
ECB's decision to introduce a system to protect banks from the
impact of negative rates.
Write to Tom Fairless at tom.fairless@wsj.com
(END) Dow Jones Newswires
October 10, 2019 09:24 ET (13:24 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.