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EU’s Kallas Says Vigilance Needed While Inflation Stays Low

Policy makers “must be vigilant” to ensure persistently low inflation doesn’t cause problems, European Commission Vice President Siim Kallas said today.

Low inflation isn’t “an imminent threat” that requires abrupt action, said Kallas, who this month took over the economic and monetary affairs portfolio when Olli Rehn stepped aside to run for the European Parliament. Kallas spoke in an interview in Washington during the International Monetary Fund’s spring meetings.

“We always have wanted low inflation because we don’t want money in our pocket to lose its value,” Kallas said. “But at the same time, if it stays too long it can have some negative effects.”

Kallas said the commission is studying Italy’s latest reform proposals to meet European Union economic-governance rules. “Their main problem is obviously the debt level,” Kallas said, adding that so far there is no sign of a dramatic change that would prevent Italy from meeting its commitments.

Italy’s public debt-to-GDP ratio is expected to climb this year to 134.9 percent, from 132.6 percent last year, according to Italian Prime Minister Matteo Renzi’s budget plan, which his cabinet approved this month.

Budget Targets

France plans a series of needed reforms to boost competitiveness and “we are very positive about the reforms they intend to implement,” Kallas said. At the same time, he said France is unlikely to get more time to meet EU budget targets.

“No I don’t think there’s any appetite to give them some additional room,” Kallas said. France must stick to its commitments to avoid damaging euro-area credibility, he said.

Kallas said the EU’s progress in creating a euro-area banking union shows the bloc’s recovery from the worst of the financial crisis. The European Central Bank will take over bank supervision in the currency zone this year, and lawmakers also have reached a deal on how to handle the region’s failing banks.

“In 2008, if somebody had said that this kind of thing will come, it would have created a hysterical laugh. And now it’s done,” Kallas said.

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