The head of the German central bank has said that Europe’s emergency bond purchase program should end “in the coming year”.
The statements by Jens Weidmann in an interview with Handelsblatt on Friday are a signal that the European Central Bank will be exposed to increasing pressure to implement its pandemic emergency purchase program (PEPP) worth 1.85 trillion euros while the economy of the Eurozone recovers.
ECB President Christine Lagarde said last week it was “premature” to start discussing the dismantling of PEPP, its main anti-crisis tool. Chief Economist Philip Lane said this week that as of September there may still not be enough information to do this.
Mr Weidmann, one of the more conservative “hawks” in the Governing Council, said: “We should definitely not withdraw support too soon.” But he added: “With further progress in dealing with the pandemic, I am thoroughly optimistic that we make progress in overcoming the crisis and then be able to do without our purchases more carefully. “
Weidmann rejected recent calls to move some of PEPP’s added flexibility – such as the ability to buy oversized bonds from a country – to the traditional asset purchase program, which will last much longer.
He also opposed the idea that the ECB should not withdraw PEPP until its inflation forecasts were back to pre-pandemic levels – something Lane has suggested. “That doesn’t convince me,” said the Bundesbank boss. “This is an exceptional emergency program and the emergency will likely be long by then.”
The German producer prices for industrial products rose in May by 7.2 percent compared to the previous year, the highest increase since 2008 – according to the data published on Friday. The Bundesbank has forecast that the country’s headline inflation will exceed 4 percent this year – the highest level in more than a decade.
Weidmann said, however, “the sharp rise in prices in Germany is temporary” and added: “Persistently excessive inflation would, among other things, require excessive collective bargaining agreements. So far we have no evidence of this. “