Schaeuble Denies Deflation Risk, Cites Need for Reforms

German Finance Minister Wolfgang Schaeuble said the euro area doesn’t face a deflation risk, though low inflation is a medium-term challenge for the European Central Bank.

Schaeuble, who balanced Germany’s federal budget last year, praised France and Italy for efforts to make their economies more competitive and said euro-area governments need to focus on “structural reforms” rather than look to the ECB to help spur growth.

Schaeuble’s comments during a trip to India today amplified the position of Chancellor Angela Merkel’s government two days before a possible ECB decision on bond-buying that has raised concern in Germany. Any central-bank action shouldn’t undermine pressure for economic reforms, Merkel said yesterday.

“Monetary policy decisions are taken by the ECB,” Schaeuble told reporters in New Delhi. While “it’s undisputed that low inflation and low inflation expectations in the medium term are challenges for monetary policy,” euro-area governments “must do what they have to do,” he said.

With France moving forward on structural reforms and Italy updating its labor laws, “we’re in the process of strengthening growth forces in a number of countries,” he said.

While Schaeuble said “sustainable finance policy” is a requirement for economic growth, Merkel suggested there may be wiggle room in her government’s goal of balancing the budget at least through 2018.

“Avoiding net new borrowing at least for one year is the least we can do” to ease the debt burden on future generations, Merkel said in her speech in Eschborn near Frankfurt yesterday.

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