The European Central Bank is in principle willing to take action, but whether it takes any depends on the latest data, ECB Governing Council member Jens Weidmann said Wednesday.
During a moderated interview followed by audience questioning, Weidmann, who heads the Bundesbank, did not contradict a media report earlier this week describing the Bundesbank as supportive of a policy move if necessary, suggesting instead that the statement was a truism.
ECB President Mario Draghi’s comment last Thursday meant “we are open to acting if it is necessary but will naturally wait for and assess the incoming data,” Weidmann said.
Weidmann said “I don’t feel isolated in the Governing Council,” and added that “if there is a need to act in terms of monetary policy, then the Bundesbank is also ready.”
Should the analysis show conditions demand a response by monetary authorities, “then the Bundesbank is naturally also willing to act,” he said.
Still, Weidmann did not appear convinced of the need and rebuffed repeated attempts to draw him out on the subject.
Asked for example about the danger of low inflation being too persistent, he said “the discussion next month will reveal” whether or not this is the case. “I won’t make any pre-announcement about a decision that is to be taken … after a thorough analysis,” he said.
In any event, “some calmness in the debate would also do quite well.”
The risk of deflation at present is “relatively slight” and should become smaller yet as the recovery progresses, he said. If there were deflation, “one would actually see that in the expectation of sinking prices, buying decisions are postponed.”
Similarly, Weidmann appeared less concerned than others about the importance of the exchange rate, saying this factor “also plays a certain role” in the low inflation, like energy.
A look at experience shows that “via a depreciation of an exchange rate one cannot sustainably strengthen the competitiveness of a country,” he said. Moreover, the real effective exchange rate of the euro “is approximately where it was also at the start of Monetary Union.”
The currency’s firmness reflects in part improved confidence in the area, he said.
The capital flows out of emerging economies and into the Eurozone also demonstrate confidence and depress interest rates, he said.
U.S. monetary policy is not intended to weaken the dollar, he said, adding, “No one would win a currency war.”
What Europe needs to solve its problems are wise decisions and competitive companies, he said. Although some think one “can solve the problems of Europe through monetary policy, I am firmly convinced that this is not the case.”
In other comments, Weidmann called France “an important country that at the moment is operating at the limits of the (fiscal) rules.” Whether these rules are properly enforced depends on the European Commission and the German government’s insistence, he said.
The stability framework “must be supported by the public so that the whole thing works,” he said.
With respect to the domestic economic situation, Weidmann said Germany is operating at the limits of its capacity utilization.