Rehn Says Nations With Surpluses Should Accept Higher Inflation

European Union Economic and Monetary Affairs Commissioner Olli Rehn said euro-area countries with current-account surpluses should accept the need for inflation rates that are higher than average.

Countries such as Germany, the currency bloc’s largest economy, should understand the requirement for rising prices to help rebalancing across the 17-nation region, Rehn said in Brussels today.

“It’s important that the countries that have had current-account surpluses accept that there has to be a somewhat higher-than-average inflation in these surplus countries so that we can support the necessary rebalancing and do it as smoothly and fast and effectively as possible,” Rehn told a conference at the European Parliament.

Inflation in the euro area, which is struggling to recover from a debt crisis now in its fifth year, has stayed below the European Central Bank’s goal of “close to but below” 2 percent for the past 10 months, according to EU data published on Nov. 29. After slowing to 0.7 percent in October, the weakest pace in four years, it accelerated to 0.9 percent last month.

The European Commission, the EU’s executive arm, has in recent weeks put pressure on Germany to boost spending. The commission doesn’t see Germany’s trade surplus falling below the EU threshold of 6 percent of gross domestic product until at least 2016.

ECB Rates

“We have recommended all along the way and now again in the latest recommendations to surplus countries to increase domestic demand and boost investment,” Rehn said. “That’s what we have recommended to Germany and I’m looking forward to having a more in-depth analysis of the coalition agreement of Germany in this light where the CDU and SPD have agreed on economic and fiscal policies.”

German Chancellor Angela Merkel’s Christian Democratic bloc, which won Sept. 22 elections without gaining a majority, has agreed to a coalition government with the Social Democrats.

To help combat low inflation, the ECB cut its key refinancing rate by a quarter of a percentage point to a record low of 0.25 percent on Nov. 7, prompting Germany’s Bundesbank to warn that the low interest-rate policy risks endangering the stability of the financial sector.

“The longer the low-interest-rate environment lasts, the greater the undesired side-effects and risks for financial stability,” Bundesbank board member Andreas Dombret said on Nov. 14 in Frankfurt.

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