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Debt Crisis Has Forced ECB to Do Things ‘Out of Order’: Volcker

The scale of Europe’s debt problems has forced its central bank to go beyond its traditional role in order to limit the cascading effect of the crisis, the former Chairman of the U.S. Federal Reserve, Paul Volcker, told CNBC on Tuesday.

Former U.S. Federal Reserve Chairman Paul Volcker
AP
Former U.S. Federal Reserve Chairman Paul Volcker

“(The ECB) is being asked to do things that are out of order in terms of their basic mission, which is to maintain monetary policy in Europe,” Volcker told CNBC in Singapore.

“Emergency accommodation was not part of their mission. But events have forced that upon them,” he added.

The central bank ramped up its purchases of European government bonds to 9.5 billion euros ($13.07 billion) in the week ended November 4, ECB’s latest bond-buying data showed. This was more than double the purchases made the previous week and took the ECB’s bond-buying program, which started in May last year, to 183 billion euros.

He added that his big biggest concern at the moment was that European Union policymakers would be unable to convince the markets that they can hold the bloc together.

“There's some difference of opinion as to how to proceed politically…all that makes it very difficult. I think they have the elements of a program agreed. But, whether it's agreed in the size and the force that's necessary remains in question.”

In late October policymakers agreed to a 440 billion euro European Financial Stability Fund (EFSF). However, a method for leveraging the fund has yet to be decided.

“They have to provide some funds to support Italy and Spain during this crucial period. Greece has been relieved of some of its debt burden. (These) are all important steps, but they haven't been implemented in full yet and with sufficient force.”

US Economy ‘Slogging’ Along

With regard to the U.S. economy, Volcker - who until January was the Chairman of the Economic Recovery Advisory Board in the Obama administration - said it was "slogging" along, with unemployment and the housing market remaining key concerns. “People are unhappy and understandably so,” he said.

However, Volcker declined to comment on whether the U.S. Federal Reserve would embark on another round of quantitative easing or QE3 to stimulate the economy.

“The Federal Reserve has interest rates down to zero and ample liquidity in the economy obviously (it) has done what it can do,” he said.

Contact Asia Economy

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