Ifo President Sinn Criticises ECB Stress Test As “Too Tame”
Oct 26, 2014
Ifo President Hans-Werner Sinn has criticised the European Central Bank’s (ECB) stress test for banks as “too tame”.
“The ECB has avoided going through a scenario of deflation for Southern Europe and has only found small equity gaps in many banks. But there is no way to avoid a change in relative prices that, along with inflation in the north, implies deflation in the south, if the competitiveness to the southern countries is to be restored without an increase in the average price level in the euro area. Any bid to restore competitiveness via very high inflation in the north alone would violate the ECB’s mandate to maintain stable average prices,” notes Sinn. With its assumptions the ECB has implicitly ascribed an inflation scenario to the euro area overall, so that not many banks fall below its red line.
Prof. Dr. Dr. h.c. mult. Hans-Werner Sinn
Präsident a.D. des ifo Instituts