Top economists in Davos clashed on Wednesday over the impending decision by the ECB to buy up sovereign debt, an unprecedented measure to fight deflation that powerful Germany believes would merely allow overspending eurozone states to put off reforms.
Europe has squandered three years of opportunity to carry out badly needed economic reforms, former Bundesbank chief Axel Weber said at a panel in Davos, the ski resort hosting the global elite over four days at the World Economic Forum.
"The real issue is the ECB has continuously bought time for European policy makers to fix the issue," Weber said, reflecting the views of many in the current German government.
But "they didn't do that" in the past few years, said Weber, who famously stormed out of his job at the Bundesbank when the ECB unveiled unconventional measures in late 2011.
The ECB holds its first policy meeting of the year on Thursday and is widely expected to announce some sort of buy-up of sovereign debt to try to kick-start the eurozone's sluggish economy, in a measure known as quantitative easing.
The European Central Bank has come to the rescue of the eurozone on several occasions since Greece nearly dragged down the bloc with its debt, unleashing a succession of unconventional measures since late 2011 to calm jittery markets.
However, growth remains sluggish, unemployment is stubbornly high and the eurozone is now in danger of sliding into deflation, forcing the ECB to consider deploying QE, widely credited with having successfully boosted the US and British economies.
'Late in the game'
Adam Posen, the former central banker who sat on the policy committees of the Bank of England for three years, told AFP the threat of deflation was too great to be ignored any longer.
"What's dangerous are the people who oppose QE, who I think are wrong, are trying to make sure QE fails," said Posen, who was a major proponent of QE at the BoE.
"We are very late in the game and I'm very concerned that Germany is going to keep the QE from as being as aggressive as they need it to be," Posen said.
Germany's aversion to the plan was also borne out in remarks by the ECB's former economist, who said that deflation fears in the eurozone are "totally exaggerated" and being used as a pretext to push through the controversial QE.
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.
Reports from Berlin say the ECB has devised a bond-buying programme that will be acceptable to Germany and cater to their deep reservations about QE.
The weekly news magazine Der Spiegel reported on Friday that ECB chief Mario Draghi presented a scheme to Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble aimed at allaying such concerns.
Under the revised scheme, the national central banks will only be allowed to buy the sovereign debt of their respective countries and Germany, Europe's paymaster, will not be on the hook to bail out another country, the magazine said.
But Germany is increasingly singled out on the global stage for its resistance to looser monetary policy.
"I agree with Mario Draghi. Monetary policy may create room, a time period for other policies to come out, to be implemented," said Zhou Xiaochuan, the head of the Chinese Central Bank at a Davos panel.
While a policy such as QE "is not a panacea ... it is still useful," he said.