There Is A Huge Split Inside The European Central Bank

Bulls fighting locking horns

The eurozone is about to pick up where the UK and US started five and a half years ago and begin quantitative easing. That’s according to some European Central Bank sources who talked to Bloomberg.

That’s a good thing if you think QE has the potential to offer an economic stimulus: Europe’s growth is incredibly slow, and inflation is next to nothing. In fact, given the recent slump in oil prices, deflation now seems likely for the eurozone early in 2015.

But support for the ECB to buy government bonds — which might make conditions in the eurozone easier for lenders and borrowers — is far from universal.

The German newspaper Welt names Germany’s Sabine Lautenschlager as one of the policymakers likely to vote against QE. That’s no surprise given an extremely pessimistic speech she recently gave.

But the opposition isn’t just German this time: Welt says Luxembourgian Yves Mersch and Frenchman Benoit Coeuere are apparently both against government bond purchases, too.

If true, that’s fully half of the six-member executive board, which includes ECB president Mario Draghi, vice president Vitor Constancio, and chief economist Peter Praet.

Bundesbank chief Jens Weidmann, who sits on the 24-member governing council that will actually make the QE decision, is also likely to be against the purchases. It’s not clear how many more members will object. The Bundesbank boss has been on the offensive Friday morning, saying the ECB’s low interest rates are inappropriate for Germany, that the Bundesbank is in an uncomfortable position, and that easy policy can reduce the incentive for governments to reform.

It’s hard to see this improving. Draghi confirmed during Thursday’s news conference that he would not wait for everyone to agree before bringing in new easing measures (probably QE):

We don’t need to have unanimity. It’s an important monetary policy measure. It can be designed, I believe, it can be designed to have a consensus. I’m still confident, but we have to remember that we have a mandate, and as I said before, we don’t tolerate deviations from our mandate that would cause ultimately a tightening, an unwanted tightening of our monetary policy.

Previous big easing measures at the ECB (interest rate cuts and smaller asset purchases) have been unanimous. That’s way more important than it is for other big central banks, because it’s a part of balancing the sometimes-opposed wishes and needs of a pretty diverse group of countries.

So Draghi, and the rest of the ECB, have a choice: go ahead without Germany, and potentially some other council members, or wait for unanimity that might never come. If Draghi does pursue QE without a consensus, that’s going to give even more weight to the ECB members who think he isn’t consulting them enough and is too aloof. Internal criticism of the ECB president might become less anonymous and more forceful, undermining his credibility, which is pretty much the last thing Europe needs.