Bundesbank boss: ECB no lender of last resort

The European Central Bank should not act as lender of last resort for struggling eurozone countries, the head of Germany's central bank said on Tuesday, warning it could destroy its independence.

Bundesbank boss: ECB no lender of last resort
Photo: DPA

Speaking at a conference in Berlin, Bundesbank President Jens Weidmann also said he was confident that both Spain and Italy could manage their current difficulties without recourse to outside aid.

“There are compelling reasons why we should stick to the independence of the central bank, especially in difficult times,” Weidmann said, according to the text of a speech provided by his office.

The ECB “does not have the mandate – it is even forbidden – to finance the budgets of member states,” the central banker added.

“If it took on a lender of last resort role for highly indebted member states, it would overshoot its mandate and call into question its independence,” Weidmann said. “There would be significant stability risks attached to this path.”

Pressure on the ECB to step in and backstop the debts of weaker member states has increased amid a crippling economic crisis that threatens to tip the 17-nation zone into recession. But the ECB has steadfastly refused to go further than their current programme, already controversial, of buying the bonds of distressed countries to help ease the pressure on them.

Two top German central bankers, former Bundesbank chief Axel Weber and ECB chief economist Jürgen Stark, have already stepped down in protest at the bond-buying programme, saying it compromised the ECB’s cherished independence.

Weidmann later received the backing of German Finance Minister Wolfgang Schäuble who told parliament: “We will do everything necessary to combat the dangers for the stability of the euro as a whole.

“But only in such a way to ensure that the common (euro) currency remains a stable currency … a stable currency with an independent central bank and a central bank that is not available to finance states,” said Schäuble to loud applause.

Turning to the domestic economy, central bank chief Weidmann said: “I currently do not see a recession in Germany. “However, all forecasts have an unusually high degree of uncertainty attached to them. We will only be spared a recession if the current crisis of confidence does not escalate further,” he cautioned.

He said Germany had a responsibility, as Europe’s top economy, “to act as an anchor of stability in the European monetary union.”

Schäuble also echoed these sentiments, saying that the German economy is “still strong” despite the crisis. “We are still the growth motor in Europe. We are still the stability anchor in Europe,” the minister said.


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German consumer prices set to rise steeply amid war in Ukraine

Russia's war in Ukraine is slowing down the economy and accelerating inflation in Germany, the Ifo Institute has claimed.

German consumer prices set to rise steeply amid war in Ukraine

According to the Munich-based economics institute, inflation is expected to rise from 5.1 to 6.1 percent in March. This would be the steepest rise in consumer prices since 1982.

Over the past few months, consumers in Germany have already had to battle with huge hikes in energy costs, fuel prices and increases in the price of other everyday commodities.


With Russia and Ukraine representing major suppliers of wheat and grain, further price rises in the food market are also expected, putting an additional strain on tight incomes. 

At the same time, the ongoing conflict is set to put a dampener on the country’s annual growth forecasts. 

“We only expect growth of between 2.2 and 3.1 percent this year,” Ifo’s head of economic research Timo Wollmershäuser said on Wednesday. 

Due to the increase in the cost of living, consumers in Germany could lose around €6 billion in purchasing power by the end of March alone.

With public life in Germany returning to normal and manufacturers’ order books filling up, a significant rebound in the economy was expected this year. 

But the war “is dampening the economy through significantly higher commodity prices, sanctions, increasing supply bottlenecks for raw materials and intermediate products as well as increased economic uncertainty”, Wollmershäuser said.

Because of the current uncertainly, the Ifo Institute calculated two separate forecasts for the upcoming year.

In the optimistic scenario, the price of oil falls gradually from the current €101 per barrel to €82 by the end of the year, and the price of natural gas falls in parallel.

In the pessimistic scenario, the oil price rises to €140 per barrel by May and only then falls to €122 by the end of the year.

Energy costs have a particularly strong impact on private consumer spending.

They could rise between 3.7 and 5 percent, depending on the developments in Ukraine, sanctions on Russia and the German government’s ability to source its energy. 

On Wednesday, German media reported that the government was in the process of thrashing out an additional set of measures designed to support consumers with their rising energy costs.

The hotly debated measures are expected to be finalised on Wednesday evening and could include increased subsidies, a mobility allowance, a fuel rebate and a child bonus for families. 

READ ALSO: KEY POINTS: Germany’s proposals for future energy price relief

In one piece of positive news, the number of unemployed people in Germany should fall to below 2.3 million, according to the Ifo Institute.

However, short-time work, known as Kurzarbeit in German, is likely to increase significantly in the pessimistic scenario.