ECB's Mersch Joins Weidmann in Explaining Policy Path to Germans

  • Officials agree policy can react once inflation path sustained
  • Mersch addresses public on second day of Bundesbank open house

The Bundesbank got a little help this weekend from one of the European Central Bank’s top officials in assuring Germans that monetary policy will eventually be adjusted.

Yves Mersch, a member of the ECB’s executive board, joined forces with his German colleague Jens Weidmann on the second day of an open-house event at the Bundesbank’s headquarters in Frankfurt. Between food stands and educational activities for children, Mersch told the audience that the ECB’s 2.3 trillion-euro ($2.6 trillion) bond-buying program and negative interest-rate policy have helped to “revive the economy,” but that “this movement is not yet self-sustained, that’s why we need to have patience with this policy.”

At the same time, he offered some hope to Germans complaining about low interest rates, arguing that the ECB can shift its stance before inflation breaks through its goal.

“Differently than in other countries, where they say they have to reach 2 percent, we say we need to reach a level which is compatible in the mid-term,” he said on Sunday. “We don’t necessarily have to wait for prices to reach 2 percent before adjusting monetary policy.”

Speaking on the same stage 10 minutes before him, Bundesbank President Weidmann reiterated the message that he had given the previous day.

Less Gas

“At the moment we see that the economic situation is rather positive,” Weidmann said. “If this sustainably passes on to inflation rates then monetary policy needs to be more taut, and it’s not about putting full brakes on monetary policy, but to lift one’s foot off the gas a little.”

Germany remains one of the biggest critics of the ECB’s ultra-loose policy, and the public’s long-standing trend of saving money in bank accounts has led to outrage over low interest returns. As the euro-area recovery becomes increasingly solid, the ECB is trying to evaluate how the economy would tolerate a gradual withdrawal of monetary support, and Weidmann has frequently expressed his concern that consideration for less fiscally stable members of the currency union might lead to an exit being postponed for too long.

“You need to be able to rely on us to promptly normalize monetary policy once the inflation outlook justifies it,” Weidmann said during a one-hour dialog with the public. “We can’t become prisoners of the market or fiscal policy, or make our decisions based on other considerations.”

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