European Central Bank minority opposed bond buying stimulus

FRANKFURT—Top European Central Bank officials were united over the need for more stimulus at their last meeting but some pushed back against the eventual decision to launch bond purchases that inject newly printed money into the economy.

The written account of the meeting released Thursday backed up recent evidence of an unusual amount of dissent over a key decision at the Sept. 12 meeting.

The account says that “all members” agreed on the need for some kind of additional stimulus for the 19-country eurozone economy. But “a number of members assessed the case for renewed asset purchases as not sufficiently strong,” according to the account.

They were quoted as saying that bond purchases would either be ineffective or should be held back as a last resort.

The 25-member rate-setting council in the end decided by “clear majority” to start 20 billion euros (US$22 billion) in purchases a month and to cut a key interest benchmark to minus 0.5% from minus 0.4%. The bank also said it would keep rates low indefinitely until inflation is clearly coming back in line with the bank’s goal of just under 2%.

The export-focused eurozone economy is suffering a drop in growth due to the trade dispute between the U.S. and China, among other things. Yet with market interest rates already very low after years of central bank stimulus efforts, a debate has broken out about how much difference another blast of monetary support will make. Many bonds issued by eurozone governments, for instance, trade at negative interest yields.

Several ECB council members have publicly expressed disagreement with the extent of the stimulus package backed by President Mario Draghi. They included Klaas Knot from the Netherlands and Jens Weidmann of Germany, while German official Sabine Lautenschlaeger, a member of the top six-member executive committee that runs the bank day to day, voiced opposition to bond purchases ahead of the meeting and resigned afterward – more than two years before the end of her term – without publicly stating a reason.

“It is not the first time in ECB history that there have been dissenting voices in the Governing Council, but they have rarely been as loud and persistent as they are now,” said Carsten Brzeski, chief economist for Germany at ING.

The stimulus measures have been widely criticized by economists and news media in Germany, where they are perceived as aiding financially weaker eurozone governments and as depriving savers of interest returns.

The dissenters are in the minority, up against Draghi, who has shown a willingness to deploy unconventional tools to support the eurozone economy, and against central bankers on the council from the southern European countries that have benefited from the stimulus efforts as they recover from the eurozone’s crisis over high debt.

Open dissent can be problematic for the central bank since it can sow doubts in financial markets over whether it is determined to stay on its course. Draghi leaves office at the end of October but designated successor Christine Lagarde has indicated she supports his stimulus efforts.