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ECB

Germany calls on ECB to unwind economic stimulus

The European Central Bank should begin winding down its expansive monetary policy in 2017 as inflation returns in the eurozone, German Finance Minister Wolfgang Schäuble said in an interview on Friday.

Germany calls on ECB to unwind economic stimulus
Wolfgang Schäuble has long grumbled about the ECB's policies. Photo: Kay Nietfeld/dpa
“It would probably be right if the ECB starts daring to head for the exit this year,” Schäuble told the Sueddeutsche Zeitung newspaper — although he acknowledged it would be a “difficult task”.
 
The ECB has fixed interest rates at record lows in the 19-nation single currency area, as well as offering cheap loans to banks and buying up tens of billions of euros per month of government and corporate debt.
   
The moves are designed to make more cash from the financial system available to the real economy, powering growth and investment and driving inflation towards its target of just below 2.0 percent.
   
German economists and political leaders have long grumbled about the policy, objecting that low interest rates hurt savers.    
 
With interest rates on many savings accounts lower than inflation, Germans' cash piles will shrink in real terms if prices continue to grow and rates remain unchanged.
   
“I share the concerns” of savers, Schäuble told the SZ on Friday, noting that inflation is expected to rise further in 2017.
   
In Germany, prices increased faster in December than in the rest of the eurozone, at 1.7 percent compared to an average of 1.1.
   
There is “ongoing evidence of German inflation picking up markedly,” IHS Markit economist Howard Archer tweeted Friday, warning that the rise would “fuel tensions with the ECB”.
   
Schäuble acknowledged that any exit from expansive monetary policy would be “a difficult task to solve” for the ECB, as moves that look like removing the support could spook financial markets.
   
The German minister also cast barbs at fellow eurozone members he sees as laggards on economic reform.
   
“The problem at the moment is not the ECB,” he told the SZ. “A range of member countries are not delivering what they committed themselves to, namely improving their competitiveness.”
   
German inflation breaking away from the eurozone average showed that “the problem is the weakness of other states, not Germany's strength,” Schäuble said.

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ECB

Inflation rose in Germany in December: report

Inflation in Europe's largest economy Germany clambered higher in December, official data showed Friday, but remained short of the European Central Bank's target for the 19-nation eurozone.

Inflation rose in Germany in December: report
Prices in Germany are rising, but not as fast as they should be. Photo: Jens Büttner / zb / dpa
Price growth hit 1.5 percent year-on-year last month, statistics authority Destatis said, some 0.4 percentage points higher than in November.
   
And it reached the same level when measured using the Harmonised Index of Consumer Prices (HICP) yardstick preferred by the ECB.
   
But while German price growth was headed in the right direction, it was still well short of the ECB's just-below-two-percent goal. Over the full year 2019, inflation averaged just 1.4 percent.
   
“There is little sign of sustained growing price pressure that could prompt the ECB to rethink its ultra-expansive monetary policy,” said economist Uwe Burkert of LBBW bank.
 
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Here's a graph put together by the German newswire DPA, showing how the inflation rate in Germany has fluctuated between 2008 and 2019. 
 
 
 
The ECB has set interest rates at historic lows, granted hundreds of billions of euros in cheap loans to banks, and bought more than 2.6 trillion euros ($2.9 trillion) of bonds in efforts to keep credit flowing to the economy, stoking growth and inflation.
   
But it has fallen short of its eurozone-wide price growth target for years, predicting last month it would inch up to just 1.6 percent by 2022.
   
Economists have pointed to both uncertainty over political events, like trade wars and Brexit, and long-term developments like ageing populations as possible reasons for sluggish growth and inflation.
   
Under new chief Christine Lagarde, the ECB plans to launch a wide-ranging “strategic review” this year, its first since 2003, that could adjust its tools or even reexamine the inflation target itself.
   
In the meantime, she has urged countries — like Germany — with sound government finances to lift spending in hopes of juicing the economy.
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