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ECB official warns of inflation risks

Monday, February 25 16:01:54

The European Central Bank should move back toward traditional monetary policy and away from its current path which is too close to fiscal policy, ECB Governing Council member Jens Weidmann said today.

Weidmann also said that France, where he was speaking, must meet budget deficit targets it has signed up for, and that it is especially important for it to show an example to smaller euro countries.

Talking generally about efforts to solve the euro zone debt crisis, Weidmann repeated his stance that central banks could not solve the crisis if they wanted to, and that they should not be pushed to take a role in fiscal policy.

Putting the onus on governments to act, he said monetary policy or exchange rate policy cannot be the solution to the debt crisis.

"Central banks must focus on price stability, must remain independent, and must not become too closely intertwined with fiscal policy," he said in the text of a speech to be given at HEC business school.

He cited the Bank of Japan as a central bank under political pressure, but also warned that the expectations of central banks saving the day had become so large in the euro zone that it was time to worry about inflation eroding buying power.

French President Francois Hollande called earlier this month for the euro zone to set a medium-term target for the euro, receiving a frosty response from Berlin as well as the ECB.

Weidmann said overactive central banks are a bigger problem, which could erode the common currency.

"If we care about stable prices and if we care about purchasing power then we should be worried," Weidmann said.

"We should be worried because on the European dance floor monetary and fiscal policy are moving toward each other." Reuters