POLICY U-TURN:THE EUROPEAN Central Bank (ECB) rode to the euro zone's rescue yesterday after executing one of the sharpest policy U-turns in its 12-year history, but in the process raising concerns about its politicisation in the wake of Europe's financial crises.
Purchases of euro-zone government bonds on an undisclosed scale – a step regarded as unthinkable until recently – began just hours after the ECB’s announcement of measures to shore up the euro zone’s stability.
The move provoked rare public dissent within the ECB’s decision-making government council. Axel Weber, Germany’s Bundesbank president and known ECB “hawk”, criticised the move “even in this exceptional situation”.
The bank also said it was stepping up the provision of emergency liquidity to banks by reintroducing unlimited offers of three- and six-month funds, and teaming up with the US Federal Reserve and other central banks to provide extra dollar liquidity.
The action threw into reverse the ECB’s “exit strategy”, by which it had been undoing gradually the exceptional measures it had taken since the collapse of Lehman Brothers in September 2008.
As such, it was a clear show of force by the euro zone’s monetary guardian. But the package was controversial because it took the ECB closer, if not beyond, the boundary separating fiscal and monetary policy in Europe’s monetary union – creating risks to the central bank’s independence.
“The more you are part of the game, the harder it is to be independent,” said Jörg Krämer, chief economist at Commerzbank.
ECB president Jean-Claude Trichet said that despite Mr Weber’s objections, the ECB’s governing council had approved the bond purchases by an “overwhelming majority”.