ECB policymakers clash over sickly eurozone economy

RIGA/VIENNA, Oct 18 (Reuters): European Central Bank (ECB) policymakers clashed on Friday over what policy medicine to administer to the sickly eurozone economy, laying bare deep-seated tensions within the Governing Council.
Bundesbank President Jens Weidmann said he saw no need for fiscal stimulus in Germany, rejecting a thinly veiled appeal from ECB President Mario Draghi for Berlin to increase its public investment levels to help support the eurozone.
Germany, a strong advocate of fiscal austerity, has come under pressure from other countries including the United States, and finance officials around the globe to use its large current account surplus and budgetary room for manoeuvre to invest.
Earlier, Draghi's lieutenant at the ECB, Benoit Coeure, said governments could help counteract lower prices with "fiscal policy, when it is available without questioning long-term debt sustainability" - a cue for governments like Germany to invest.
The discord between the hawkish Weidmann and policymakers closer to Draghi such as Coeure highlights deep divisions within the Council about how far the ECB should go to support the economy, and comes just as jittery markets look for reassurance.
Weidmann brushed off the suggestion that more German public investment could help other eurozone economies, and also took aim at ECB plans to buy asset-backed securities, or bundled loans -- a dig that a further ECB policymaker rejected.
"The boost to the peripheral countries from an increase in German public investment is ... likely to be negligible," Weidmann told a conference in Riga, where Coeure also spoke.
"And with the economy operating at normal capacity utilisation, Germany is not in need of stimulus either -- and this will remain the case with the revised forecasts that still foresee growth in line with potential," he added.
On Tuesday, German Chancellor Angela Merkel rejected calls for Berlin to ditch its plans for a balanced budget next year.
In a landmark speech in late August, Draghi signalled he was ready for the ECB to deploy further stimulus. But he also called for governments to shape up their economies with structural reforms, saying "it would be helpful for the overall stance of policy if fiscal policy could play a greater role".
The ECB duly cut interest rates to record lows and unveiled a plan to buy private-sector assets -- covered bonds and asset-backed securities (ABS) -- but Berlin is reluctant to spend more and other governments are taking time with structural reforms.
Draghi hopes the purchases of ABS will stimulate the market for such securities and support the economy by offering companies an alternative source of credit.
Weidmann said such ABS purchases "are problematic when they imply a transfer of risks from banks to the balance sheet of the central bank".
"In the end, this could amount to a transfer of risks from banks to the taxpayer," he added.
In Vienna, another ECB Council member, Austrian central bank chief Ewald Nowotny, dismissed as "nonsense" concerns the ABS purchases will transfer risk from lenders to the ECB.