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Weidmann Says He’s Not ‘Discouraged or Isolated’ on ECB Council

March 13, 2012

Bundesbank President Jens Weidmann comments on the German economy and European Central Bank monetary policy.

He made the remarks at a press conference in Frankfurt today after presenting the Bundebank’s 2011 annual report.

On the German economy:

“Despite this challenging environment the German economy is in remarkably good shape.”

“Growth is increasingly driven by domestic forces; it increasingly stands on two feet.”

“2011 was not a bad year for the German economy. More important than the past is the future. We started the year with a dent, we are confident that activity will increase in the course of the first half of the year. We have no reason to change our forecast from December. We still project the economy to grow 0.6 percent this year.”

On German inflation:

“We assume that consumer prices will rise more strongly than previously expected. The increase of consumer prices should slow in the course of the year but we expect inflation to rise slightly more than 2 percent. We are thus revising our December forecast from 1.8 percent. Inflation would thus remain above 2 percent for a second year. But it is important that inflation expectations remain solidly anchored within our definition of price stability. We have to monitor inflation developments carefully.”

“I don’t see inflation risks out of economic developments.”

On monetary policy in times of crises:

“Monetary policy isn’t responsible for solving underlying problems. That’s the task for fiscal policy in the member states. The fiscal crisis is a confidence crisis, which we can only solve by regaining confidence in financial markets and among the population. That will only be successful if structural problems are tackled.”

“The risks have increased. The definition of appropriateness of risks, the role of monetary policy in crisis times, is a balancing act.”

On ECB non-standard measures:

While “many of these measures were important” they “blur the dividing line between monetary and fiscal policy.”

“With these measures, the central banks have taken on risks, which are reflected in our balance sheet -- a higher risk provision and lower profit.”

On Target2 imbalances:

“Target2 doesn’t create liquidity. The ECB acts as a sort of clearing house.”

“The claims of the Bundesbank at the end of 2011 amounted to 463 billion euros. At the end of February, this amount increased to 547 billion euros.”

“An independent risk from Target2 only arises if a country leaves the euro area. For our balance sheet, that doesn’t play a role because we are of course assuming that the euro area will continue to exist. Target2 balances are a symptom of the crisis and will normalize as the crisis abates.”

“Target2 balances will dwindle when money markets relax.”

“I don’t want to speculate about the potential exit of a country. It’s obvious that we assume a continuation of the system.”

On an ECB exit strategy:

“In principle, one should know how to get out when you get in. Non-standard measures aren’t only analyzed according to their effects but also according to their risks.”

“It is important that we develop a concept. There’s unity on the council in as much as all council members are aware that non-standard measures create risks and have to be unwound. We need this discussion and it is taking place. The timeframe depends on several things, including how the environment develops.”

“I don’t feel discouraged or isolated” on the ECB council.

“It’s important to reduce the dependency of banks on central-bank funding. With a three-year tender it is a bit more complicated, but we have instruments to absorb liquidity. We have to have this discussion, which instruments we can use in this situation.”

On euro-area inflation:

“Monetary policy looks at the average inflation rate in the euro area and not in individual countries. Inflation rates are primarily driven by energy prices, which have acted differently than expected, and indirect taxes. These effects must be assessed differently than second-round effects. But we must monitor inflation developments carefully.”

“ECB President Mario Draghi has made clear in the last press conference that inflation forecasts were revised up and short-term upside risks exist. I share the prognosis of Mr. Draghi.”

On the ECB’s three-year loans:

“The three-year tender had a positive impact on financial markets. Then we have to talk about the risks and side effects. The situation in Europe is very heterogeneous, and there were signs of a credit crunch in several economies. In Germany, that was not the case.”

“Risks and side effects are known to colleagues in the ECB council. That’s why I don’t feel like the lonely caller.”

“The decision in itself was reasonable to stabilize the situation at the time.”

“With these measures, we’re only buying time. This time has to be used to get to the roots of the sovereign debt crisis.”

On Greece:

“The programs in Greece contain implementation risks. The Greek government is responsible for the implementation of the program and aid was pledged under the assumption that their promises are kept.”

On Weidmann’s letter to Draghi:

“The fact that this letter became public was certainly not helpful for the discussion in the council and not helpful for me or Mario Draghi. But we continue to exchange views on this. I don’t feel isolated on the ECB council because I see that the arguments are taken on in discussions.

“Many who write about my role see more problems than I do. I’ve known Mario Draghi from his time as FSB chair. Our exchange has intensified since I joined the council. I would describe our relationship as good. We respect each other.”

To contact the reporters on this story: Jana Randow in Frankfurt at; Simone Meier in Frankfurt at

To contact the editor responsible for this story: Craig Stirling at

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