Thursday

7th Jul 2022

German bank breaks anti-inflation taboo

  • Bundles of euro banknotes at the central bank in Germany (Photo: bundesbank.de)

In a marked shift from its age-old taboo of accepting higher inflation, the German Bundesbank on Wednesday (10 May) said it may tolerate a devaluation of the common currency to help out crisis-hit countries suffering under a strong euro.

Jens Ulbrich - who heads the economics department for Germany's central bank - told a public hearing in Berlin that it would hurt to weaken his country's powerful export model and to loosen its national financial policies just to help other countries.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

He added however, that as "periphery" countries face economic restructuring - decreasing labour costs and making it easier for employers to hire and fire - Germany might have to live with a higher inflation rate.

"In this scenario, Germany is likely to have above average inflation rates in the future," he said.

Echoing comments made by European Central Bank chief Mario Draghi last week, the German banker added that euro states should create a "real fiscal union" in which countries hand over a portion of their sovereignty on fiscal matters to a European body.

Since the beginning of the crisis, the Bundesbank has been the most wary of any sort of inflationary policies and consistently opposed interventions by the European Central Bank, such as the €1 trillion in cheap bank loans that helped bring down Italy and Spain's borrowing costs.

The International Monetary Fund on Tuesday joined a chorus of economists calling for Germany to spend more and allow for higher wages so as to shrink the big gap that exists between the southern, crisis-hit euro countries and the economic powerhouse of Europe.

German finance minister Wolfgang Schauble last week also suggested a shift in the low-wage-to-keep-strong-exports policy, saying German workers should have wage increases. "

If anyone deserves a pay rise, it is the Germans," he joked.

IMF tells Germany to do more for eurozone

Germany's economy is doing well in its recovery, but the country should be more "active" in helping the rest of the eurozone cope with the crisis, the International Monetary Fund has said.

ECB considers printing more money

The European Central Bank over the next months will consider various options of 'quantitative easing' - also known as money printing - to counter the risk of deflation.

Rising prices expose lack of coherent EU response

The increasingly sharp debate over the rising cost of living exploded in European Parliament, with lawmakers from all stripes, liberal, left, green and conservative, calling on the EU to act.

News in Brief

  1. Catalan MEPs lose EU court case over recognition
  2. 39 arrested in migrant-smuggling dragnet
  3. France to nationalise nuclear operator amid energy crisis
  4. Instant legal challenge after ok for 'green' gas and nuclear
  5. Alleged Copenhagen shooter tried calling helpline
  6. Socialist leader urges Czech PM to ratify Istanbul convention
  7. Scottish law chief casts doubt on referendum
  8. British PM faces mounting rebellion

Stakeholders' Highlights

  1. Nordic Council of MinistersNordic and Canadian ministers join forces to combat harmful content online
  2. Nordic Council of MinistersNordic ministers write to EU about new food labelling
  3. Nordic Council of MinistersEmerging journalists from the Nordics and Canada report the facts of the climate crisis
  4. Council of the EUEU: new rules on corporate sustainability reporting
  5. Nordic Council of MinistersNordic ministers for culture: Protect Ukraine’s cultural heritage!
  6. Reuters InstituteDigital News Report 2022

Latest News

  1. EU should freeze all EU funds to Hungary, says study
  2. Legal action looms after MEPs back 'green' nuclear and gas
  3. EU readies for 'complete Russian gas cut-off', von der Leyen says
  4. Rising prices expose lack of coherent EU response
  5. Keeping gas as 'green' in taxonomy vote only helps Russia
  6. 'War on Women' needs forceful response, not glib statements
  7. Greece defends disputed media and migration track record
  8. MEPs adopt new digital 'rule book', amid surveillance doubts

Join EUobserver

Support quality EU news

Join us