The former Bundesbank president, Axel Weber, said on Thursday that the zero-interest, quantitative easing monetary policies of the European Central Bank had become ineffective, and that new answers were needed.
"All operators in the financial markets have a far too short-sighted focus today and I no longer exclude the central banks from that," he told the Handelsblatt Banking Summit in Frankfurt. "Monetary policy has very strongly deteriorated into a repair shop for the state and financial markets.”
The ECB's sword of monetary policy, the tools it uses to try to stimulate economic growth in the 19-country zone, had become "blunt," Mr. Weber, the chairman of Swiss bank UBS, said.
"In a world of zero or negative interest rates, monetary policy only works via its influence on the capital markets or the exchange rate, meaning indirectly,'' he said. "That’s why it requires ever larger operations by the central banks to achieve the same effect as in the days when monetary policy still worked via the interest rate channel or the credit channel.”
Mr. Weber resigned as Bundesbank president in 2011 in a dispute over the ECB's handling of the euro debt crisis. He criticized the Frankfurt-based central bank for buying sovereign bonds of crisis-hit nations to keep their yields in check and enable nations to keep on refinancing themselves.
The ECB's policy of large-scale bond purchases and rate cuts have sparked criticism from German officials and bankers who say its discouraging governments from maintaining fiscal discipline, penalizing savers and failing to boost economic growth, its primary goal.
The British often talk about the Continent being cut off when there’s fog in the channel. This image happens to be true regarding the capital market. Axel Weber, UBS Chairman
Mr. Weber warned against exaggerated expectations that Britain’s exit from the European Union would boost continental European financial centers at the expense of London.
"When London is out of the E.U., the E.U. will take a long time to form a capital market,” Mr. Weber said. "The British often talk about the Continent being cut off when there’s fog in the channel. This image happens to be true regarding the capital market.”
He said London had replaced New York as the world’s biggest financial center following the financial crisis, while Frankfurt, the German financial capital, only ranked No. 16.
He urged European financial centers like Frankfurt and Paris to avoid competing with each other so as not to further weaken their roles in the capital market.
Many financial transactions between institutional investors aren’t governed by the E.U.’s “passport,” which enables financial market professionals in one E.U. country to serve clients in the other 27 without having to set up local operations.
Many cities saw Brexit as an opportunity, he said, like Rome, Paris, Madrid and Frankfurt.
"But I see a risk in that,'' Mr. Weber said. "If a European competition erupts here, the global financial market could move to other regions. I think the British will recognize that their future will depend on the existence of the London City (financial district), and they will do a lot to maintain this supremacy. When Britain leaves the E.U., London will have much more room for maneuver, for example in taxation."
Continental Europe could play a far lesser role in global financial transactions, while New York, Mumbai or Zurich could be the beneficiaries, he warned.
Gabor Steingart is Publisher and CEO of Handelsblatt and Handelsblatt Global Edition. To contact the author: [email protected]