You are here

Schaeuble sees euro-area 'moral hazard' risk in ECB bond-buying

[BERLIN] The European Central Bank's bond-buying decision risks deterring euro-region governments from taking steps to restore their countries' competitiveness, German Finance Minister Wolfgang Schaeuble said.

"The only problem we see is the moral hazard," Mr Schaeuble said on a World Economic Forum panel in Davos, Switzerland, on Friday.

"Some people could misunderstand that they don't have to do what they have to do as governments, as parliaments and so on. Because to implement structural reform is always a difficult political task."

ECB President Mario Draghi said Thursday the bank will buy 60 billion euros (US$67.5 billion) of debt a month through September 2016. That will probably comprise about 45 billion euros in investment-grade sovereign bonds, 5 billion euros in the debt of euro-area public agencies and 10 billion euros under existing programs to buy asset-backed securities and covered bonds, a euro-area official said.

Market voices on:

Mr Schaeuble's comments echo concerns voiced by Chancellor Angela Merkel and Bundesbank President Jens Weidmann, who has called quantitative easing "sweet poison" for governments and criticized the ECB decision. Mr Draghi told reporters it's "crucial that structural reforms be implemented swiftly, credibly and effectively" to complement the bank's move.

Mr Schaeuble said the ECB is doing a good job at maintaining price stability as it faces a risk of deflation, though he said the German media's response to the decision was "difficult." Italy's "impressive" economic reforms show what needs to be done alongside the ECB's bond-buying plan, which can't replace government action, Merkel said in Florence at a joint press conference with Italian Prime Minister Matteo Renzi.

"The countries of the euro zone need to use this opportunity now to do the structural reforms, to get their public finances in order, to make the changes that are going to attract business and investment from around the world to Europe," UK Chancellor of the Exchequer George Osborne said on the Davos panel.

International Monetary Fund Managing Director Christine Lagarde said in a statement after the ECB's decision it's essential that monetary policy is supported by "comprehensive and timely policy actions in other areas," not least "structural reforms to boost potential growth and ensure broad political support for demand management policies."

The European Commission on Jan 13 updated the way it enforces budget rules to help countries boost investment and make long-term economic changes, measures that could help Italy and France pass their next round of deadlines.

France and Italy have until March to convince the commission that their 2015 budget plans are in line with EU spending rules.

"You can't address structural problems with monetary policy," Spanish Economy Minister Luis de Guindos said on the panel. "Monetary policy is not an almighty instrument. You have to address the structural problems with supply-side reforms."

The economy of Spain, a euro-region country that needed a bailout, has grown for five straight quarters and the government forecasts growth of 2 per cent this year, exceeding the euro-area average.