German official cautions over more ECB stimulus

Associated Press

FRANKFURT, Germany (AP) — Germany's top central banker said it's too soon for the European Central Bank to talk about a further shot of stimulus for the struggling eurozone economy.

Jens Weidmann said the ECB only this month loosened monetary policy with an interest rate cut to a record low of only 0.25 percent.

"I don't think it's a good idea to announce the next round right away," he said in an interview with Die Zeit newspaper made available Wednesday.

Weidmann's warning follows remarks by ECB executive board member Peter Praet last week that the ECB could take the additional step of purchasing financial assets such as bonds — if the bank thought the economy was threatened by deflation, a corrosive, chronic fall in prices. Deflation undermines growth and investment as people hold off on purchases as goods become cheaper. It also makes debts harder to pay.

Deflation concerns have ratcheted up in recent weeks after inflation in the 17-country eurozone fell to 0.7 percent in the year to October, well below the ECB's target of keeping prices increases just below 2 percent.

In theory, pumping money into the eurozone economy could help ease those deflation concerns and help the eurozone recovery from recession. Other central banks including the U.S. Federal Reserve and the Bank of England have made such purchases with newly created money to lower interest rates and spur growth.

The ECB, the chief monetary authority for the eurozone, had until recently said little about using the bond-purchase stimulus tool, or "quantitative easing" in economic jargon.

Last week, the Wall Street Journal quoted Praet as saying the bank could purchase assets if its mandate to maintain price stability was threatened.

If the price stability mandate is at risk, Praet said, then "we are going to take all the measures that we think we should take to fulfill that mandate." That includes "outright purchases that any central bank can do."

The idea of quantitative easing faces resistance in Germany, Europe's largest economy. Many in Germany are skeptical of central bank measures seen as potentially inflationary, or as bailing out troubled euro member governments that won't take steps themselves to improve growth.

Weidmann is only one vote however on the 23-member ECB rate-setting council, a post he holds as head of Germany's national central bank, the Bundesbank.

Weidmann said that Europe's troubles over slow growth, uncompetitive eurozone member economies and too much debt "certainly cannot be solved through the money printing press."

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