EU Academics Say Loose ECB Policy Still Fits Bill

The European Central Bank’s exceptionally loose monetary policy remains appropriate, a large majority of academics said in a survey on Monday, countering German experts’ dim view of the ECB’s stance.

A council of experts that advises Chancellor Angela Merkel’s government said last week that the ECB should scale back its stimulus program of bond purchases given the extent of the bloc’s economic recovery, Reuters reported.

But a broader survey of 64 European academics by the Center for Macroeconomics and the Center for Economic Policy Research showed 78% disagreeing or strongly disagreeing with the German view, offering a snapshot of a long-running policy divide between Berlin and much of the rest of Europe.

Hoping to boost growth and inflation, the ECB currently buys €80 billion ($88.55 billion) worth of assets, mostly government bonds, each month and has cut interest rates deep into negative territory.

The bank is set to decide next month whether to extend the purchase program beyond its scheduled end next March.

With eurozone inflation forecast to rise to a three-and-a-half year high of 1.3% by March, calls are growing for the bank to take its foot off the stimulus pedal.

Arguing that low rates are destroying savings and hurting ordinary Germans, Berlin has taken an openly hostile view of ECB policy, a conflict the central bank says could threaten its independence and erode the effectiveness of its policies.

Respondents in Monday’s survey, who included former Bank of England Deputy Governor Charlie Bean and former Irish central bank deputy governor, Stefan Gerlach, also disagreed with the German view that ECB policy was masking structural reforms.

“I don’t believe that it ‘masks’ the structural problems—they are still perfectly evident—though it certainly reduces the pressure on national governments to address them,” said Bean, an architect of the BoE’s own stimulus program.

“The ECB would be straying beyond its legal mandate were it to deliberately underachieve on its inflation objective in order to place more pressure on member states to undertake the necessary reforms,” Bean added.