May 14 (Bloomberg) -- European Central Bank policy makers clashed over the bank’s asset-buying program and prospects for a recovery less than a week after President Jean-Claude Trichet engineered a truce.Here are the previous related posts:
Vice President Lucas Papademos said in Vienna today that a recovery may come sooner than previously thought. Minutes earlier, Dutch council member Nout Wellink said economists shouldn’t get too optimistic about “green shoots.” That came a day after Germany’s Axel Weber and Slovenia’s Marko Kranjec reopened a split over the size of the ECB’s bond-purchase plan.
A split on the 22-member Governing Council this year has made it difficult for Trichet to send a clear signal on how the ECB will step up its fight against Europe’s worst recession since World War II. While he won support on a plan to purchase 60 billion euros ($82 billion) in covered bonds, a compromise on the program’s focus and scope may already be unraveling.
Kranjec said in an interview yesterday the ECB is likely to spend more than 60 billion euros, a figure that Weber insisted would be a “maximum.” The debate rumbled on today across Europe, with Slovakia’s Ivan Sramko saying nothing can be excluded and Executive Board member Jose Manuel Gonzalez-Paramo saying there’s no plan to expand purchases “at the moment.”
On May 7, the ECB cut the key rate to a record-low 1 percent and Trichet said that it’s not necessarily its lowest level. He also announced the ECB’s unprecedented decision to buy covered bonds, securities backed by mortgages and public-sector loans which have suffered a slump in demand during the financial crisis. Details of the plan are to be unveiled next month.
The size of the ECB’s plan “is peanuts for an economy the size of the euro zone,” economics professor and former Bank of England policy maker Willem Buiter said at a conference in Dublin yesterday. “I expect they will announce more or that the recession in the euro zone will be longer and deeper than would otherwise be necessary.”
The Federal Reserve, Bank of England and Bank of Japan have already lowered their key rates to close to zero and are buying government and corporate debt, effectively pumping new money into their economies in a policy some economists label quantitative easing.
Executive board member Juergen Stark later weighed in on the debate, saying Trichet is the only council member whose voice counts.
“At the end of the day the president is ‘porte parole’ of the governing council,” Stark said this evening in Berlin, using a French phrase meaning spokesman. “So listen to what the president says.”
“Trichet should probably impose some order,” said Stephane Deo, chief European economist at UBS AG in London. “The deluge of conflicting messages is putting more volatility into the markets.”
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