Yes, but look who’s talking:
Bundesbank President Axel Weber has dished out €338 billion!!!
– EU has squandered last chance to make euro workable, warns Ex-Bundesbank chief (Telegraph, Jan 21, 2015):
Axel Weber says it is “hard to say” whether Europe would be in better shape today if the euro had never been launched, a tactful evasion understood as nostalgia for the stability of the D-Mark
The former head of the German Bundesbank has warned that the European Central Bank (ECB) will not succeed in raising inflation for years to come and is almost powerless to revive the fortunes of the eurozone on its own.
Axel Weber, now chairman of UBS and widely-regarded as Europe’s most influential private banker, said Europe’s leaders had squandered the chance to rebuild the eurozone’s foundations when the going was good and markets were calm.
In an ominous sign, he appeared to lose confidence in the euro altogether, cautioning that monetary union will be tested repeatedly and may not survive unless EMU leaders agree to bite the bullet on full fiscal and political union.
“The ECB has continuously bought time for European policy makers to fix the issue but they didn’t do it,” he told the World Economic Forum in Davos.
The region is now stuck in a 1pc low-growth trap at best, with dangers looming once again on the horizon. “I really don’t see any bold action from governments needed to reach escape velocity. There has been no competitive reform. Europe has lost the opportunity,” he said.
Mr Weber warned that the eurozone remains crippled by its failure to share real risk. This leads ineluctably to fresh tensions between the North and South with each spasm of the crisis. The structure has to be transformed. “If this does not happen, there will always be questions about the viability of the project,” he said.
Asked whether Europe would be in better shape today if the euro had never been launched, he answered that is “very hard to say”, a tactful evasion understood by almost everybody in the room as nostalgia for the stability of the D-Mark.
While there is a little doubt that the ECB will unveil a “sizeable” package of bond purchases at its crucial meeting tomorrow, Mr Weber said it had to make major compromises to hold the ECB council together. The markets have already priced in “very high expectations”, leaving no margin for disappointment.
Most experts expect a formula in which each central bank buys only its own national debt in order to avoid any sharing of risk, but this merely underscores the fragmented nature of the system and may ultimately backfire.
Mr Weber said the ECB’s Mario Draghi will not succeed in generating much inflation for years to come “however many bonds he buys”.
Harvard professor Kenneth Rogoff said he felt a “depressing certainty” that Europe will slide back into crisis, though the trigger is likely to be political next time as the economic malaise drags on.
He doubted whether the sort of QE being proposed by the ECB at this late stage will succeed in lifting the eurozone off the reefs. “I don’t think it will be a big enough change in quantity to make a real difference,” he said.
Prof Rogoff said it is part of a deeper problem across the world as bond yields fall to historic lows and inflation expectations become unhinged. “I think central banks are surprised that they’re having so much trouble creating inflation. Markets don’t think they can do it any longer,” he said.
Mr Weber warned that central banks are pursuing policies in a narrow self-interest without much regard for the global knock-on effects, though he stopped short of calling it a currency war. “The international system at the moment is seriously unanchored,” he said.
The effect is finally ricocheting back into the US in the form of a surging dollar and rising risks in the US high-yield debt market. Mr Weber said the Federal Reserve may not be able to tighten policy or raise rates as soon as the markets seem to expect. “I don’t think the Fed can continue on the path announced,” he said.