Jens Weidmann has morphed from Dr. No into Mr. Maybe.
After building a reputation as a nay-sayer on the European Central Bank’s Governing Council, the Bundesbank president’s support for large-scale asset purchases marks a shift that helps the fight against deflationary threats. His tentative backing of quantitative easing will shore up its credibility as officials debate whether they need to implement it.
German officials at the ECB have throughout the euro-area debt crisis been among the fiercest opponents of bond buying. Asset-purchase plans triggered the resignation of two German central bankers and drew criticism from others, including Weidmann. That makes any change of stance significant should ECB President Mario Draghi push for QE as the best way to safeguard the recovery.
“Weidmann’s comments are very important and mark the first time in the euro’s history that the Bundesbank is clearly publicly on the side of QE,” said Julian Callow, founder of Catalyst Economics Ltd. in London. “A program isn’t a given but consensus is important. It gets you some of the way without having to do it.”
Weidmann last month said that QE isn’t “generally out of the question.” The remarks, published in an interview with Market News International on March 25, came six days before data showed euro-area inflation unexpectedly slowed to 0.5 percent, the lowest rate in more than four years. Subdued price pressures undermine economic growth and efforts to reduce government debt burdens.
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