Former central bankers warn about dangerous ECB policies


The policy that the European Central Bank has now implemented is harmful. Six former central bankers, including former DNB president Nout Wellink, warn against this in a joint memorandum. It is exceptional for former central bankers to express themselves in this way.

The six feel called by the increasing crisis measures that the ECB is taking to openly criticize. They endorse the criticism of Klaas Knot, the current president of DNB, and go even further.

“As former central bankers and as European citizens, we look with increasing concern at the continuing crisis mode of the ECB,” they write.

In addition to Wellink, former central bankers Hervé Hannoun (France), Otmar Issing (ECB), Klaus Liebscher (Austria), Helmut Schlesinger (Germany) and Jürgen Stark (ECB) signed the memorandum.

The concerns of the six begin with the observation that the ECB has gradually changed its mandate. The central bank aims to ensure that the value of the euro is stable.

A very specific definition has also been drawn up for this: inflation, the extent to which a currency loses its value, must remain below 2 percent. This year it will stay below 1.5 percent.

That therefore fits within the official mandate, and measures such as a reduction in interest rates may not be necessary immediately. But the former central bankers point out that over the years the ECB has interpreted the inflation target as very precise just below 2 percent.

“That gives a fantastic alibi as long as inflation does not go to 2 percent, just to keep widening,” says Wellink. “Even if you have a satisfactory 1 or 1.5 percent.”

The Zombies

That’s dangerous, they warn. The negative consequences of low interest rates spread from banks, to insurance companies, pension funds and the entire financial sector.

Due to low interest rates, both some investments and savings yield less, which means that investors and companies are looking for investments and investments that yield more but are also more risky. This pushes the price further up for such possessions, such as shares and houses.

But the impediment is artificial, the six say. And the risk grows with it. Those high prices can eventually plummet abruptly, and that can even lead to a deep crisis. Weak companies, ‘zombies’ that now artificially survive through cheap loans, can then fall over.

They are also unhappy about the purchase program. “After years, it will hardly have a positive effect on economic growth.” And that increasingly raises the suspicion that the ECB now mainly buys up debts to help governments in southern Europe that are deeply in debt, say the signatories of the memorandum. There are no Southern Europeans among them.

The longer and further this ‘broad’ policy of the central bank continues, the harder it will be to stop. And the greater the risk of a relapse.

The conclusion of the memorandum is ominous. “If there is a major crisis, it will be of a very different magnitude from what we have seen so far. Like other central banks, the ECB threatens to end its control over the creation of money.”

The statement comes not long after the ECB has taken new steps to boost the economy. It was announced in September that interest rates will continue to fall, and that debts will be bought up again.

“That was not the immediate reason for this memorandum,” says Wellink. “It did speed it up.” Together with the five other former central bankers, he has been concerned about developments in ECB policy for some time.

“Knot’s comments are part of a process of increasing transparency at the ECB,” said Wellink. “At first there were no minutes, now there are minutes without attribution and the next step will be minutes with names, as is the case in the US and the UK. Public statements such as those of Knot, which make individual views clear, fit in with this process of increasing transparency. “

This memorandum is intended to initiate a discussion about that policy. Wellink: “According to the EU treaty, politicians are not allowed to exert pressure, who can?”

By: Nicholas de Kramer

Nicholas de Krammer, а self-taught economic analytic with heave mathematical background. Math behind the economics (and economics behind math) is the strong side of the author. Contact him at

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