SAFE Policy Blog

Rise in Inflation Puts Pressure on ECB

Volker Wieland: start phase-out of bond-buying program now

According to Volker Wieland, member of the German Council of Economic Experts, the rise in inflation to 2.0 percent in the euro area sends a clear signal to the European Central Bank’s monetary officials to revise the ECB’s present course of monetary policy. In the run-up to the meeting of the ECB Governing Council on 9 March, Wieland requests the ECB in several media reports (F.A.Z., Handelsblatt, Reuters, HR-Info) to slow down the bond-buying program. In the past, ECB officials had stressed over and over again that they were aiming at an inflation mark of scarcely less than 2 percent. Now it was time to present an agenda of how to exit the bond-buying program, Wieland demands. The Professor of Monetary Economics (Goethe University Frankfurt) warns that waiting too long with tapering would involve substantial risks. According to him, the ultra-loose monetary policy has already caused a significant increase in asset prices. Moreover, many banks are facing a rising risk of changing interest rates. “The difficulties in adapting will grow,” Wieland is cited by the daily newspaper F.A.Z.

An increase in the longer-term interest rate is expected as soon as the ECB stops buying bonds. A sudden interest rate increase would be dangerous not only for the banks but also for the highly indebted euro area member states.