"There's an enormous conflict within the Governing Council on what the ECB should do"
- Joerg Kraemer, chief economist at Commerzbank AG
European officials continue to argue over how much more stimulus the European Central Bank should provide to the Euro zone's economy. President Mario Draghi reiterated his pledge to expand the central bank's balance sheet by as much as 1 trillion euros to combat deflationary threat. Bundesbank head Jens Weidmann replied by saying that a target value is still a subject for discussion. This deepening conflict between two central bankers resulted in an exclusion of Weidmann from decision making process in a time when crucial decisions are about to be made. This is not the first time when Draghi and Weidmann disagree, however, history shows that usually Draghi prevails over his German colleague. The ECB is expanding its balance sheet as it tries to revive inflation of 0.3%, the lowest level in almost five years. By purchasing private-sector assets, as it plans to start doing from this month, or continuing to accept collateral from banks in return for cheap loans, it is injecting liquidity into the Euro economy. Still the question is whether it ultimately buys sovereign debt, a taboo subject in Germany. German policy makers continue insisting on tough austerity measures as the only way forward, while others believe that more money needed to be spent to heal the fragile Euro zone's economy. Austria's central bank Governor Ewald Nowotny stresses that European governments should consider investment spending to support the Euro economy as it would be more effective than having the ECB embark on large-scale purchases of government bonds to reduce interest rates.
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