Carsten Brzeski, chief economist at ING, explains that the just-released minutes of the ECB’s September meeting provide the dry and matter-of-fact arguments for the controversies and show that ECB members were heavily divided on which course to take.
Key Quotes
“Here are the highlights from the minutes, illustrating a rift at the ECB on almost every major topic:
- Macro outlook. While some ECB members considered the ECB’s growth outlook to be too optimistic, others still expected a rebound in activity.
- Policy decisions. Interestingly, the minutes stated that “all members agreed that a further easing of the monetary policy stance was warranted to support the return to sustained convergence to the Governing Council’s inflation aim”. However, while some ECB members were even prepared to cut interest rates by more than 10 basis points, others needed more evidence for the need to cut at all. In diplomatic ECB language, this translates into: “A number of reservations were expressed about individual elements of the proposed policy package”¦Although the rational for a comprehensive package was widely shared, members assessed the case for specific elements differently”¦” There was also no unanimity of the changes to forward guidance, with some members wanting to stick to the date-related rather than the state-related condition. Finally, even the decision on a tiering system for the deposit facility was not made unanimously, with some ECB members stating that the bank transmission channel was functioning well.
- Fiscal policy. The only area of harmony at the September meeting. With all members agreeing that “governments with fiscal space should act in an effective and timely manner. In response to the significant risks related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets, policies other than monetary policy would be more effective and were better suited to address country-specific shocks.” Unfortunately, judging from yesterday’s Eurogroup statements, this is a ball in the government’s court, which they are not yet willing to pick up.”
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