The monetary policy of the European Central Bank has been too tight. This is shown in the fall of core annual inflation to just 0.8 per cent in the year to October 2013. The case for the monetary easing undertaken last week was overwhelming. Indeed, it was long overdue.
Yet, it has been leaked, the decision to cut the refinancing rate from ½ per cent to ¼ per cent split the council. Both German representatives – Jörg Asmussen, a member of the ECB’s board, and Jens Weidmann, head of the Bundesbank – as well as the heads of the central banks of the Netherlands and Austria voted against this move.
Open splits on national lines have emerged previously, but only over controversial programmes such as the Securities Markets Programme, launched under Jean-Claude Trichet, Mario Draghi’s predecessor as president of the ECB, and the Outright Monetary Transactions programme, launched by Mr Draghi in the summer of 2012. Both of these initiatives were intended to relieve market pressure on sovereign bonds. That was bound to be controversial, given German hostility to monetary financing of governments. But such splits over standard monetary policy decisions are new. This matters: they endanger the legitimacy of the ECB – and so of the monetary union.