ECB's Trichet rejects Weber view on bond buying

RIMINI, Italy (Reuters) - European Central Bank President Jean-Claude Trichet took issue with recent comments on ECB policy by Bundesbank chief Axel Weber, saying they did not represent the views of the central bank’s governing council.

European Central Bank President Jean-Claude Trichet speaks at The Economic Club of New York luncheon in New York October 12, 2010. REUTERS/Lucas Jackson

In an interview with Italian daily La Stampa on Sunday, Trichet said the governing council as a whole did not agree with Weber’s remark last week that the ECB’s government bond-buying program had not worked and should be scrapped.

“No! This is not the position of the Governing Council, with an overwhelming majority,” he said, according to an English transcript of the interview published on the ECB’s website.

“This nonstandard measure, like all other such measures, was designed to help restore a more normal functioning of our monetary policy transmission mechanism. And we are withdrawing all the liquidity, euro for euro, that is supplied through this program,” he said.

He also struck a less hawkish note on interest rate policy than Weber, an influential member of the governing council and one of the top candidates to take over when Trichet’s own ECB term expires next year.

Asked later by reporters to elaborate on his comments and on Weber’s position on the issue within the governing council, he said his position had not changed since the decision to implement the program was taken.

“I have nothing to add to what I said at the very moment we took the decision,” he said. “We took the decision, it was a decision taken with an overwhelming majority.”


Last week, Weber said policymakers should not wait too long before withdrawing emergency liquidity measures and raising interest rates, prompting widespread speculation of divisions among the ECB’s leaders.

“As you know, I never comment on remarks made by fellow members of the Governing Council,” Trichet told La Stampa.

“What is important, of course, is that there is only one single currency; there is one Governing Council, only one monetary policy decision, and one president, who is also the porte-parole of the Governing Council,” he said.

“At the last ECB press conference, I said very clearly that current interest rates are appropriate,” he said, adding that the ECB had built a “very, very remarkable track record” on price stability, with average annual inflation of 1.97 percent since it took over charge of monetary policy.

“And thanks to this credibility, inflation expectations are extremely well anchored for the next five and 10 years in line with our definition of price stability,” he said.


Speaking to reporters, Trichet declined to be drawn on the discussion over a potential currency war between global powers as the dollar has fallen sharply, simply repeating warnings against excessively violent swings on forex markets.

“I have no new messages. Excess volatility and misalignments are counterproductive for stability. I appreciate the position, the statements of the U.S. authorities that the stronger dollar vis-a-vis the major floating currencies is in the interests of the United States of America.”

He said emerging market countries including China had agreed to reforms to improve exchange rate flexibility.

“I encourage all emerging economies that have large (current account) surpluses to go in this direction,” he said in an Italian television interview later on Sunday.

In the La Stampa interview, he repeated calls for decisive action by European governments to shore up their battered public finances and urged tougher measures against countries that break budget rules, including quasi-automatic sanctions.

But he said that if another crisis threatened, it could be useful to create a permanent structure for managing renewed turmoil after the European Financial Stability Facility, the temporary bailout mechanism set up in May, expires in 2013.

“We said that such a stabilization fund could be imagined. It would then have to respect a number of criteria,” he told reporters who asked about the prospect.

“It should be something which would not comprehend moral hazard. It would be something which should be based on very, very strong conditionality,” he said.

Editing by Will Waterman and Maureen Bavdek