By Stella Dawson, Chief ECB Correspondent
Reuters, May 02, 2003
MUNICH, May 2 (Reuters) - Bundesbank Vice President Juergen Stark gave weight Friday to the European Central Bank keeping rates unchanged, saying that monetary policy poses no barrier to a pickup in European growth.
Stark, who often attends ECB policy meetings, is the latest of a string of central bankers to call the 2.50 percent official ECB rate conducive to a recovery, although he and another top Bundesbank official said risks to the outlook remain.
"The current stance of monetary policy in Europe as well as globally is highly accommodative. In particular the monetary policy of the ECB is not a barrier to economic recovery," Stark said in a speech prepared for a Munich Economic Summit.
Bundesbank Chief Economist Hermann Remsperger said at a separate event that growth in the euro zone and Germany would improve this year.
"I want to stress that some risks (to growth) have decreased, but that doesn't mean that there are no longer any risks," Remsperger told reporters on the margins of a Bundesbank conference in Eltville.
The Bundesbank comments come even as there was fresh evidence of a weakening of euro zone manufacturing. A Reuters survey of purchasing managers, conducted after the fall of Baghdad to U.S. forces, slipped to 47.8 percent in April from 48.4 in March, the lowest reading since Jan. 2002.
The ECB meets again next Thursday, when it is widely expected to leave rates unchanged for the second straight month, although many analysts say a listless European economy should cause the ECB to ease the credit strings again in June.
The latest prominent economist urging an ECB rate cut was Ifo Institute for Economic Research President Hans-Werner Sinn. "There is no reason whatsoever to have such a tight monetary policy," Sinn told Reuters in an interview.
He said the ECB has room to lower rates gradually to the 1.25 percent level of the U.S. Federal Reserve, and pointed to the purchasing managers data and a weak Ifo business sentiment index for April as evidence of no growth in either Germany or Europe.
RISKY BUSINESS
Stark, who canceled his appearance at the Munich conference where the text of his speech was released, did warn of risks to the outlook -- anemic European growth, particularly in Germany, and Japanese growth; heavy indebtedness of U.S. households which makes consumer spending vulnerable; and stretched housing markets, particularly in Britain and the United States.
Rapid adjustments in foreign exchange rates also endanger the global economy, Stark said in an indirect reference to concerns that a dollar crash could destabilize economies.
The dollar has been weakening sharply all year, while the euro has been rising against the dollar for roughly a year now and hit a four-year high against the dollar and yen this week.
Against this background, Stark said the best way of restoring growth is for central banks to pursue medium-term policies and for governments to tackle fiscal issues.
Remsperger said there were also good sides to the strong euro, however, and it was not yet hurting competitiveness -- though it might do so later.
"It is clear that the development of the euro contributes to an inflation rate in the euro zone and Germany that is heading towards levels that are consistent with price stability," he said.
The euro's rise had caused the Bundesbank's price competitiveness indicator for the German economy to decline in recent months, and while the indicator was still above its long-term average, it was now close to it, he said.
Stark also said that banks had become more selective in their lending and are consolidating their credit business to improve profitability. But this is not causing a lack of access to money.
"At this juncture, there is no evidence of a credit crunch in Germany or elsewhere in Europe," Stark said.
ECB STRATEGY FUNCTIONS WELL
In the text of his speech, Remsperger argued that raising the ECB's inflation ceiling above the 2 percent level, as some critics of the central bank's monetary policy strategy have suggested, was hardly justifiable.
The ECB is currently reviewing its monetary policy strategy and some economists, such as Sinn, say the current ceiling has caused the ECB to keep interest rates unnecessarily high, damaging growth.
"The ECB is too afraid of inflation," Sinn told Reuters. He advocates a 2.5 percent target with a 1 percent floor for inflation. Otherwise, low-growth economies are penalized with tight money while less mature, fast-growing economies in the euro zone catching up in the development process have higher inflation.
Please send your comments or questions on specific articles to: presse@ifo.de. Please mention in your e-mail the article you are concerned with.
Phone: +49(0)89/9224-1604 Fax: +49(0)89/9224-1267
2012 2011 | 2010 | 2009 2008 | 2007 | 2006 2005 | 2004 | 2003 2002 | 2001 | 2000
Press Echo
Comments on current economic policy issues in Policy Debate:
RSS