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Deflation fears 'exaggerated': ECB's ex-chief economist

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Deflation fears 'exaggerated': ECB's ex-chief economist

Juergen Stark - Photo EC

(FRANKFURT) - Deflation fears in the eurozone are "totally exaggerated" and being used as a pretext to push through new controversial measures, the ECB's former chief economist said in a newspaper interview Wednesday.

The European Central Bank "wants to drive down the refinancing costs of individual countries. That is very different from traditional monetary policy," Juergen Stark told the business daily Handelsblatt.

The ECB is widely expected to launch a contested new programme of so-called "quantitative easing" or "QE" at its first policy meeting of the year on Thursday after inflation in the single currency area turned negative for the first time in five years in December.

Quantitative easing, the large-scale purchase of government bonds, is highly controversial in Europe, where critics see it as a licence to print money to get governments out of debt.

That is explicitly banned under the ECB's own statutes, and critics argue it takes the pressure off governments to push through vital, but unpopular, economic reforms.

However, proponents of QE argue that without additional monetary easing, the 19-nation eurozone could slip into a dangerous downward spiral of falling prices, such as Japan has been battling for many years.

The ECB has said it aims to expand its balance sheet by around one trillion euros ($1.15 trillion) to boost the amount of liquidity in the eurozone economy and push inflation higher.

But Stark -- who was the ECB's chief economist from 2006 until 2011 when he resigned because he disagreed with the unconventional policy measures the central bank had taken -- said the ECB had already set itself that target before area-wide inflation turned negative.

Furthermore, easing monetary conditions still further "will neither have an effect on the real economy, nor drive inflation higher," he argued.

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