Friday

29th Mar 2024

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

Get the EU news that really matters

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.

'Swiftly dial back' interest rates, ECB told

Italian central banker Piero Cipollone in his first monetary policy speech since joining the ECB's board in November, said that the bank should be ready to "swiftly dial back our restrictive monetary policy stance."

Opinion

EU Modernisation Fund: an open door for fossil gas in Romania

Among the largest sources of financing for energy transition of central and eastern European countries, the €60bn Modernisation Fund remains far from the public eye. And perhaps that's one reason it is often used for financing fossil gas projects.

Latest News

  1. Kenyan traders react angrily to proposed EU clothes ban
  2. Lawyer suing Frontex takes aim at 'antagonistic' judges
  3. Orban's Fidesz faces low-polling jitters ahead of EU election
  4. German bank freezes account of Jewish peace group
  5. EU Modernisation Fund: an open door for fossil gas in Romania
  6. 'Swiftly dial back' interest rates, ECB told
  7. Moscow's terror attack, security and Gaza
  8. Why UK-EU defence and security deal may be difficult

Stakeholders' Highlights

  1. Nordic Council of MinistersJoin the Nordic Food Systems Takeover at COP28
  2. Nordic Council of MinistersHow women and men are affected differently by climate policy
  3. Nordic Council of MinistersArtist Jessie Kleemann at Nordic pavilion during UN climate summit COP28
  4. Nordic Council of MinistersCOP28: Gathering Nordic and global experts to put food and health on the agenda
  5. Friedrich Naumann FoundationPoems of Liberty – Call for Submission “Human Rights in Inhume War”: 250€ honorary fee for selected poems
  6. World BankWorld Bank report: How to create a future where the rewards of technology benefit all levels of society?

Join EUobserver

EU news that matters

Join us