January 13, 2014 / 4:59 PM / 5 years ago

German ECB candidate strikes hawkish tone

BRUSSELS/FRANKFURT (Reuters) - Sabine Lautenschlaeger, the Bundesbank vice president set to replace Joerg Asmussen at the European Central Bank, struck a hawkish tone on Monday as she warned that low interest rates “are not without risks”.

Bundesbank Vice President Sabine Lautenschlaeger speaks during a news conference in Frankfurt November 14, 2012. REUTERS/Lisi Niesner

Speaking to European lawmakers vetting her candidacy, Lautenschlaeger expressed scepticism about some of the measures left in the ECB’s depleting policy toolbox - a stance that may make life difficult for the bank’s president, Mario Draghi.

The 49-year-old Bundesbank vice president declined to say whether she would be close to the German central bank’s chief, Jens Weidmann, on policy issues and vowed to “have my own position”.

She immediately took a hawkish line on standard policy tools, but appeared to support Draghi’s flagship policy response for fighting the euro zone crisis, the ECB’s government bond purchase plan known as Outright Monetary Transactions (OMT).

“A period of prolonged monetary policy accommodation with interest rates being low for a long period is not without its risks,” she told the European Parliament’s economic and monetary affairs committee in Strasbourg.

“In fact low interest rates may be associated with spurring asset price bubbles”, she added.

Asmussen’s departure has left Draghi short of a key German ally on the six-member board that implements monetary policy. The central bank is considering some divisive measures, having already cut interest rates close to zero.

Asked about the idea of the ECB buying corporate bonds to support the euro zone economy, Lautenschlaeger expressed concerns about the central bank taking such risk onto its balance sheet: “I’m rather sceptical, I have to admit.”

She said the idea of the ECB cutting into negative territory the deposit rate it pays banks for holding their money overnight - in other words making them pay rather than receive interest - was technically and legally possible.

But she added: “When the situation comes up, the ECB needs to look into the consequences and whether it would be really an instrument helping, supporting the economy.”

Earlier, Lautenschlaeger said in written responses to questions from the parliamentarians that “some of the (ECB’s) measures should be exited as soon as possible because of their side-effects.”

Lautenschlaeger, who made her name as an expert in banking supervision, is the only candidate to succeed Asmussen, who left the ECB two years into his eight-year term to rejoin the German government as state secretary in the labour ministry.

The committee voted in favour of Lautenschlaeger’s nomination following her hearing. Now the EU parliament is due to decide on Thursday whether to back her, and the European Council will then have the last word.


The reshuffle at the top of the ECB comes at a delicate time. Euro zone inflation has undershot the ECB’s price stability target of just below 2 percent for several months and economic growth is weak despite record low interest rates.

At its policy meeting in January the ECB strongly underlined its readiness to take further action if needed but remained unclear about where the trigger points are and what the response would be. It is running out of standard tools.

Germany’s Constitutional Court will soon rule on one of the ECB’s most contentious measures, the OMT, which took the heat of the debt crisis as its promise of unlimited sovereign bond purchases provided the necessary backstop to calm fears the euro would fall apart.

Asmussen proved helpful to Draghi at the outset of his ECB stint, helping him build support for his signature bond-buying plan in Germany. The question is whether Lautenschlaeger will take up a similar mediating role on the board.

Lautenschlaeger said she agreed with the ECB’s reasoning behind the OMT scheme - to fix uneven transmission of ECB monetary policy - but she was worried whether the programme might lead countries to slow reforms.

“If certain aspects of the programme are not implemented (once it is in action), the OMT cannot be continued,” she said, echoing Asmussen’s position on the matter.

Her arrival would lead to a change of responsibilities among the six members. With her strong background in banking supervision, Lautenschlaeger is poised to get the corresponding portfolio, which would also put her in pole position to become the vice chair of the new European banking watchdog.

Additional reporting and writing by Paul Carrel; Editing by Jeremy Gaunt and Mark Trevelyan

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